There are heavy tax and national insurance burdens associated with company cars, so you should consider this before deciding to buy a company car.
The principal factors are as follows:
- HMRC will tax you personally each year through your P11D on a percentage of the cost of the car when new, whether or not it was new when it was purchased by the company. This is called Car Benefit.
- HMRC will tax you on a fixed amount if your company pays for the fuel. This is called Car Fuel Benefit.
- The Contributions Agency will charge your company employer’s national insurance on the total of your Car Benefit and Car Fuel Benefit.
- HMRC will charge your company VAT on a fixed amount if your company pays for, and reclaims the VAT on, any fuel used for private mileage, regardless of whether or not the vehicle is a company car.
- HMRC restricts the capital allowances available in any one year for the purposes of computing corporation tax, thus increasing the corporation tax payable, except in the year that a vehicle is sold.
For all these reasons we feel very strongly that it is no longer economical to buy company cars, and in particular nobody should loan their own tax-paid money to the company for this purpose. We consider it preferable to claim mileage allowance at HMRC maximum rate which is tax free and our system enables you to claim the maximum possible.
However, there is now a good range of low emission vehicles which currently attract a reasonably low benefit in kind, but HMRC review the benefit in kind percentages regularly and each year the low-emission bands change. They are currently scheduled to go up by 2% each tax year for the next five years.
You could therefore find that, although the benefit in kind and employer’s national insurance liability is quite low in the year of purchase, it will increase over the period of ownership