Having the use of a company car has been part of the remuneration package at many companies for a number of years. It has remained an enduringly popular perk, despite the increase in taxable benefit rates over the past few years in the UK.
Employees and directors pay tax on the provision of the car and on the provision of fuel by employers for all non-business mileage. Employers pay Class 1A National Insurance Contributions at 15.05% on the same amount.
The company car tax is payable by the 19th of July following the end of the tax year. The charge on cars is generally calculated by multiplying the list price of the car by a percentage which depends on the CO2 emissions (recorded on the Vehicle Registration Document) of the car. You then pay tax at 20%, 40% or 45% on this charge depending on your overall tax position. The tax rates applicable to Scottish taxpayers range from 19% to 46%.
Claim Tax Relief by having Pool Cars
Some employers find it helpful to have one or more cars that are readily available for business and used by a number of different employees. The cars are only available for genuine business use and are not allocated to any one employee. As such, they will only be racking up business mileage. Such cars are usually referred to as pool cars. The definition of a pool car is very restrictive in terms of taxation, but if a car qualifies there is no company car tax or NIC liability incurred.
Fuel for Private Travel vs Business Mileage
If your employer provides fuel for any private travel, there is a taxable benefit, calculated by applying the same percentage used to calculate the car benefit to the fuel benefit charge multiplier of £25,300. You can avoid the car fuel charge either by paying for all fuel yourself and claiming the cost of fuel for business mileage and journeys at HMRC's fuel-only advisory rates, or by reimbursing your employer for fuel used privately using the same rates.
Reduce Company Car Tax by Considering a company van
Where a company vehicle is still considered necessary, it is worth considering a van instead of a company car. Unrestricted use of a company van results in a taxable benefit of £3,600, with a further £688 benefit if free fuel is also provided. Limiting the employee's private use to only home-to-work travel could reduce both figures to zero and is a valid option to reduce company car tax.
Company Car Tax Case Study
Hailey is an owner-director. Her company car has a list price of £25,785. The car runs on petrol and emits CO 2 at a rate of 93g/km.
Hailey pays tax at 45% and her 2022/23 tax bill on the car is therefore £2,669 (£25,785 x 23% x 45%). Hailey's company will pay Class 1A NICs of £892 (£25,785 x 23% x 15.05%).
The company also pays for all of Hailey's petrol. Because she does not reimburse the cost of fuel for private journeys, she will pay tax of £2,618 (£25,300 x 23% x 45%) and the company will pay Class 1A NICs of £875 (£25,300 x 23% x 15.05%). The total company car tax and NIC cost is £7,054.
If you need help determining if company cars are viable in your business, or for assistance with company car tax, reach out to Lawrence Grant today.
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