Company cars are often seen as an attractive perk – however, they are not always the most tax efficient option.
If you have a company car, it is considered a benefit-in-kind, and you have to pay Income Tax on the car benefit and car fuel benefit, assuming you are provided with fuel by your employer for private journeys.
The car benefit is calculated by using the car's list price, multiplied by a percentage based on the car's carbon dioxide (CO2 ) emissions. Similarly, the car fuel benefit is calculated using the same percentage but on a notional £24,600 for 2021/22. Additionally, employers will also have to pay Class 1A national insurance contributions (NICs) at 13.8% on these benefits.
The appropriate percentages within the bands of CO2 emissions (and therefore the taxable benefits) increase year on year. In the light of these trends, it would be advisable to review your company car policy. There are a range of bands with appropriate percentages ranging from 1%-19% for low emission vehicles emitting less than 75g/ km of CO2. Cars with emissions above this will have their percentage rate set at 20% plus 1% for every 5g/km increase, up to a maximum of 37%.
Additionally, to accelerate the shift to zero emission cars, all zero emission models are subject to a 1% rate. From 6 April 2022 Class 1A NICs payable on company car benefits will increase by 1.25%, making the employer's contribution 15.5%. This temporary increase will be replaced by the Health and Social Care Levy of 1.25% for contributions after 6 April 2023. In view of these increases, you may wish to undertake a review of your company car policy.
It may prove more financially sound to pay employees for business mileage in their own vehicles at the statutory mileage rates, especially if their business mileage is high. In some cases, a company van might also be appropriate. The taxable benefit for the unrestricted use of company vans is £3,500 in 2021/22, plus a further £669 of taxable benefit if fuel is provided by the employer for private travel.
We can review your business motoring requirements to help keep your tax and NIC liability to a minimum.
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