TT24: Company Car Taxation
The question seems simple – if you own a company, should you have a company car, or should you run a car privately?
The answer is not so simple – it depends on several aspects which are examined below. However the puzzle can be made easier by concentrating on the decision sensitive factors and by recognising that ultimately the company pays for the car in either situation. The overall objective should be to minimise the total amount of tax and NI paid.
With the latest company car tax changes there has never been a better time to review the situation.
The new rules
The taxable car benefit is calculated by reference to a percentage of the original list price, with the percentage to be applied dependent upon the published CO2 emission of the specific car. The percentages range from 15% to 35%. A glance at the published rates will confirm that a typical director’s car will tend towards 35% rather than 15%. For example a car with a list price of £36,000 and a CO2 emission of 265 (rating 35%) the taxable benefit is £12,600, with tax payable of £5,040 p.a. at top rate.
The decision sensitive factors
- Number of private miles per annum
- Number of business miles per annum
- Make, model and engine size
- List price when new
- Value of the car now
- Value of the car in three years time
How Barnes Roffe can help
A powerful and effective spreadsheet model has been developed by us to aid the decision process . It is designed to evaluate alternative strategies by applying the decision sensitive factors and calculating the relative costs.
- Even if you decide to continue with a company car you should look at the fuel issue. Typically, unless you drive more than 12,000 private miles p.a., don’t pay for private fuel through the company – the tax will cost you more than the petrol.
- If you decide to run your car privately you can claim a tax-free mileage allowance from the company – which will allow you 40p per mile for the first 10,000 business miles and 25p per mile thereafter (in a particular tax year).
- Company vans do not fall under the new company car rules and remain with a flat scale charge of £500 per annum – i.e. you pay tax of £200 at the top rate of tax. In addition there is no scale charge for private fuel.
Barnes Roffe Topical Tips
- Quantify the decision sensitive factors and let Barnes Roffe help you to evaluate the relative costs.
- A car change (from company to private) can take place at any time in the tax year – and savings can be realised immediately.
- If you only drop car fuel, remember that to avoid the scale charge, the employer must provide no private fuel whatsoever during an entire tax year.
- What about employees? Barnes Roffe’s model can also be used for them too. It evaluates the possible savings available – at the same cost to the company.