There are numerous articles online about company car tax, but none seem to explain the concept simply. Company cars are provided by an employer to an employee as an additional ‘perk’ to their job. If you have a company car, however, this is considered taxable by HMRC, separate to the usual PAYE contributions. This article will provide useful guidance as to the kinds of things you should be thinking about when deciding on a) whether you would like a company car and b) what sort of car you should choose. This is especially key as the method for calculating this taxation has changed slightly in 2018. If you watched the Spring budget you may already be aware of this, as the levels of taxation are also linked to other forces at work in government, as the UK tries to reach its commitment to emissions levels. The rule of thumb, therefore, is that the bigger car you go for, the more you are likely to pay.
What is a ‘BIK’?
Company car tax is a BIK tax, which stands for Benefit In Kind, as it is very likely you will have use of vehicle in your own time, as well as on the company’s. The actual amount you will pay will therefore vary but in simple terms is tied to your salary, and the kind of company car you go for. Roughly speaking you can expect to pay proportionate to your income tax bracket (whether 20% or 40% etc) of the vehicle’s value, based on its Recommended Retail Price (plus any extras that come with the car) and its emission levels.
There are 21 different emission bands, from cars that emit 0-50g/km moving right up to those which emit 180g/km or more. So as an example, diesel cars are now considered amongst the guiltiest of offenders. There was already a 3% surcharge for diesel cars and the more eagle-eyed amongst you might have noticed that that went up to 4% in the last budget. At the other end of the spectrum there is also bad news. Electric cars used to be exempt from this taxation completely, but the government has now moved to capitalise on the success of electric vehicles and there is now a BIK tax on electric company cars, although at a lower level.
Financing a company car
If you are looking to minimise the financial implications of running a company car, or indeed to run one at the most tax efficient rate possible, there are a few things you can think about. The first is, of course, directly related to the above, and might drive your thinking away from the big engine beasts of the garage forecourt and towards cars with more efficient engines, and possibly even hybrids. Secondly, you might consider part-paying for the vehicle at the point of purchase, to reduce the list price used to calculate your tax liability. And, you might claim that you only have partial access to the vehicle, which you can then argue means that it is not a full benefit in kind.
Of course, the number one consideration is getting a great deal in the first place, from an established car finance expert. Whittle Hall Finance are constantly in touch with a longstanding supplier network, built up over many years and trusted to provide fantastic company car bargains – year in, year out.
There are always financial consequences to running a company vehicle. And with 21 different categories for emissions, the calculation can seem positively baroque. However, for further assistance the HMRC website holds a full list of these categories, and also provides a useful calculator for you to come to a full understanding of your tax liability for your shiny new company car.