“Should I get a company car?” is probably one of the most asked questions we receive. The fundamental answer revolves around tax efficiency and sustainability.
A company car is a way your company can pay you back for your hard work, but you should also consider the purpose and values of your business and how success is measured.
Historically, business success was realising an increase shareholder wealth and to an extent it still is, yet you should also think about your impact on the local and global community and the sustainability you build into processes.
The tax advantage of having a company car is mainly linked to electric vehicles. This is a vehicle that is powered solely by electricity and has enough range from a single charge to get you further than the end of your street. The Government are already stating that the production of fossil fuelled cars will stop in coming years and the tax rates for electric vehicles are very attractive.
To summarise the benefits, a diesel car purchased outright could only see the company benefit from a reduction in tax of 6% of the purchase price in the first year and 6% of the remaining balance each year.
If a company car has private use by a director or employee, then the company is unable to claim any VAT on the purchase (otherwise, you could get 50% of the VAT back if it is an operating lease rather than a purchase),
You individually will also have to pay personal tax at the rate you fall into as well as the company paying national insurance of 13.8% on up 37% of the “list price” of the vehicle. This means, even if you bought a second hard car for £3,000 but new it was worth £30,000, £30,000 is the value used for these calculations.
If the company then pays for fuel for the private journeys, each year (based on the same rates above) tax is paid on a percentage of an extra £24,600 – this is called a car fuel benefit.
A fully electric vehicle on the other hand (with NIL CO2 emissions) would qualify as an ecological purchase and receive 100% tax relief on the purchase price for the company as well as only a 1% tax charge for the individual compared to the 37% mentioned above – rising to 2% from 6 April 2022. The car fuel benefit is not applicable either, even if you charge the vehicle on work premises.
If saving tax and the environment are key values of your business, then an electric car is something to consider. Why not save the planet as well as saving tax!?
If you would still prefer alternative vehicles, then it is worth weighing up the benefit in kind charges of a company car vs claiming mileage for the business miles travelled to see which is best for you.
Each car will be different so doing these calculations can be time consuming and complicated, but we are here if you need us.