With so many business considerations to keep up with, company directors can be forgiven for thinking that buying a company car is a foolproof way of saving tax. However, before going ahead and investing in a vehicle, it is indispensable to take a closer look at the tax implications and prevent future headaches. In this post, we break down the real costs of buying a car through your company.
Company cars are classed as a Benefit in Kind (BIK) by HM Revenue & Customs (HMRC); benefits in kind are advantages that directors receive from their business but which are not included in their salary. The BIK classification means that if you decide to buy a company car, you will have a personal tax liability. Your monthly PAYE salary will be subject to a tax deduction depending on your earnings, your tax code, and the type of vehicle. Your company will also have to pay Class 1A National Insurance on this benefit.
When choosing a vehicle, bear in mind that the rates you will pay are affected by CO2 emissions, the list price and the type of fuel used. To encourage companies to choose cleaner cars, BIK rates are expected to rise between now and the 2019-20 tax year, so you may be facing a larger bill. Simply put, the greater the amount of CO2 produced by the car, the higher the benefit on which you will have to pay tax.
Our advice is that you use your personal car and claim the HMRC-approved rate for business mileage. For private vehicles, you can charge your company up to 45p per mile for the first 10,000 business miles and 25p per mile thereafter. This allows for a saving in both company and personal tax so it is the most cost-effective option. However if it is essential for your business to have access to a company car, consider buying an electric car; though a tax element remains, the rates are reduced compared to petrol or diesel-powered vehicles.
Every situation is different so it’s always best to consult us before making a decision, and we can advise you on the best course of action for you and your employees. If you have any further queries on this topic, do not hesitate to call us on 01204 665888 or email us at firstname.lastname@example.org