Having a company car sounds like a great perk to have – you get a vehicle to use and don’t have to shell out the cost from your own pocket.
But it’s important to know that having a company car also has an impact on your personal tax.
A company car is seen as a ‘Benefit in Kind’ (BIK) by HM Revenue and Customs (HMRC). And that means you’ll have part of your salary deducted each month in order to account for that BIK.
The amount HMRC deduct from your pay will vary depending on your earnings, your tax code and the kind of vehicle you’ve been given as a company car. Things like CO2 emissions, list price, the type of fuel used and the overall value of any additional extra on the car will all affect the premium you pay for having that company car.
Bad news for company car owners – BIK rates are on the rise
The bad news is that BIK rates for company cars are set to rise considerably between now and the 2019-20 tax year. For example, the BIK rates for cars in the 0-50 g/km and 51-75 g/km CO2 bands are due to increase by 2% per year with a 3%-4% rise planned for 2018.
There’s a table showing these BIK rate increases more clearly here
Although owning a company car sounds like a brilliant perk, it’s increasingly important to make sure you’re providing a vehicle in the most tax-efficient way. It’s also worth noting that that when you have a company car, you can't claim the usual 45p/mile travel expenses you would when using a private vehicle.
A way around that would be to provide a company light commercial vehicle (a pick-up or small van etc.) rather than a company car, where the employee could still claim back their work-related mileage – there’s more on company vans here.
Ways to make a company car more tax-efficient
If you opt for the company light commercial vehicle route, the tax rules are fairly straightforward.
The van/pick-up is obviously intended as a work vehicle, so business use and commuting to and from work are seen as tax exempt by HMRC (which wouldn’t be the case with a company car).
But the driver of the company van IS allowed to use the vehicle for their own private use as well – they just incur a certain amount of BIK tax by doing so.
You’ll need to report a standard value of £3,150 for private journeys made using your van. You can reduce this if:
- your employee can’t use the van for 30 days in a row
- your employee pays you to privately use the van
- other employees use the van – divide £3,150 by the number of employees.
Fuel for the van
You’ll also need to report a standard value of £594 for fuel used on private journeys. You can bring this figure down if:
- the employee can’t use the van for 30 days in a row
- your employee pays you back for all their private fuel
- you stopped providing fuel during the tax year.
Electric vehicles, until last year, were exempt from the BIK rules. Unfortunately, from the 2016-17 tax year, you do have to report on these ‘zero-emission vehicles’.
You have to report on your zero-emission van using a P11D form at 20% of £3,150 – which comes to £630. So you don’t pay the full amount, but there is a cost to account for if you’re thinking of going green.
How using a company van adds up
So, how do these figures add up for the average user of a company van?
As an example, let’s imagine a plumber who’s using a company van and who’s provided with free fuel. She’s a basic rate taxpayer and will be using her van privately, so she’ll incur a taxable benefit charge of £3,170. The tax paid by the employee would come to £753.60 (at the basic rate of 20%) and the business would also pay Class 1A NICs of £519.98.
Don’t forget this example is for a basic rate taxpayer – if you fall into the higher rate tax band of 40%, you’ll pay considerably more in tax.
If you’d like to know more about making tax-efficient choices for your company vehicles, give us a call on 01454 300 999, or drop an email to firstname.lastname@example.org