Tax on company vehicles

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The things you need to know about company vehicles.

Did you know?
Company car tax is payable based on the list price multiplied by the benefit in kind rate (based on the cars CO2 emissions and fuel type) and your income tax rate (whether you pay a basic rate of 20%, higher rate of 40%, or additional rate of 45%).

At the minute, a company car would create a benefit of a minimum of 16% to a maximum of 37% of the list price depending on the emissions.

 Let’s look at an example….
A vehicle worth £50,000, with emissions of 100g/km (at a rate of 24%) where you earn less than £50,000 puts you as a basic rate tax payer.
This means that tax on the company car would be calculated £50,000 x 24%x 20% = £2,400.

If the company pays for fuel, there is a staggering benefit in kind on this (based on a benefit of £24,000), and only where a huge number of personal miles are done would it be worth doing this. If we took the above example £24,000 x 24% x 20% = £1,152.

So before even taking a salary and dividends £17,760 has been used of your bands, fully using your personal allowance and starting to eat at the 20% rate.

Have a look at our company car calculator table to see an example more visually.

What about electric cars?
A pure electric car for 2020/21 will not have any tax. Then it’s 1% for the following year, 2% for the year after. However at the moment we don’t know what rates will apply after, so its worth considering what a hike to a higher rate would look like.

So looking at the numbers for an electric car, and assuming the same value of £50,000, then 2020/21 £0, 2021/22 £100, 2022/23 £200 of tax would be payable. With only a small amount being eaten out of your personal allowance.

What’s tax efficient?
So except for electric cars from April, company cars for business owners are rarely the most tax efficient method, however, its always worth doing the numbers to consider, and compare personal versus business ownership.

And a company van?
With having a company van and using it personally, the benefit is a fixed charge irrespective of the van cost. The van benefit is £3,430 and the annual taxable amount for fuel is £655. So based on these at 20% tax = £817 payable in tax.

The key here is making sure the vehicle is definitely considered to be a company van, for example having a one tonne payload.

The only other thing to consider is the cost through the company, and consider whether buying or leasing works best for you.

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