Company cars – part 2
Company car benefit charges explained
Do you save tax by having a company car?
In the second of this series, we look at the tax position regarding the taxable benefit in kind charge on having a company car.
It was not that long ago that it was very tax efficient to run a car through your own business or to have a company car as an employee benefit. In recent times that has changed as consecutive Governments, of whatever political persuasion, have worn away the advantages.
They have done this primarily by steadily increasing what is called the car benefit scale charge. Basically, this is a table imposing a tax charge on company vehicles, escalating the charge on what are considered more polluting and less energy efficient vehicles.
As you might imagine this is not a simple calculation, so let’s try and look at the extremes.
Firstly take a very low emission car. That is one for this purpose where CO2 emissions are from 0 up to 50 grams per kilometre (g/km). There is an increasing number of cars falling into that bracket, from specialist small electric cars like the Renault Twizy or Smart Electric. But now that car manufacturers have understood how things are moving, goes through to of course the groundbreaking Tesla and also to high-performance electric cars from Mercedes, BMW and others. In other words, the selection is getting larger and much better. Cars in this category for the tax year 2017/18 are taxed based on 9% of their list price.
At the other end of the spectrum, there are “guzzlers” which as you would expect are taxed much more heavily. This includes a number of the variants of the Range Rover amongst others. There are a number of guides and calculators available online to check your car’s emission rating, including:
My car details HMRC
The bad news is that if your car falls in the higher emission category, at 190g/km or above, you are taxed on 37% of the list price.
In between these rates, there is a scale of charges:
AA guide to benefit scale charges
Also, you need to note that the list price is not what you paid for the car, whether you bought it new or used. You are taxed on the original full list price including any extras.
The tax you pay depends on your total income. So if you are a so called higher rate taxpayer you could be taxed at 40% or 45%. Helpfully HMRC has provided a useful and relatively simple calculator, type ‘company car benefit charge HMRC calculator’ into your web browser to try it out.
It can sometimes still be tax efficient for your own company to own a car and we will continue to focus on this over the further blogs. In the next article, however, we will look at road tax and also the benefit charge if your company pays for your fuel!
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Company cars – part 1
Should you buy a car through your company Do you save tax by having a company car? These are two of the most commonly asked questions posed to us. In a series of articles we will try to provide you with information to help you make a more informed decision. For many years it was — Read more
