[09.03.15]

In recent years, the tax on benefits in kind, especially company cars and fuel have been increased by the HMRC. For most small limited companies, the benefits of having a company car are well outweighed by the associated tax charges. The tax is calculated from the list price at the appropriate % for each cars co2 emission, and then taxed at either 20% or 40 % , dependent on the amount of income received in the tax year.

There is also a tax charge if the company provides fuel for private use, the tax charge can be significant and for many business owners the tax amount can be more than they would use in private fuel for the year.

Most benefit in kind tax is collected through the paye system and deducted from salaries. There are however some cars which attract lower tax charges due to their low co2 emissions, for example A VW polo 1.0 has a co2 emission of 95g and therefore the benefit in kind will be calculated
as follows

List price £14730 and the percentage based on the emission level is 11%
The benefit in kind on the vehicle is £1620 and the fuel( £21,100 @ 11% ) is £2321 which will be taxed at either 20% or 40% or even 45% for the highest earners. This can be quite attractive, but most business owners would prefer a car with a larger more powerful engine, which would also be have a higher list price to drive and would cost significantly more in tax.

If you are paying tax at 40% rate then the tax due will be double than for a 20% tax rate.

Up to now electric cars have not been taxed as benefits in kind, but this will change from April 15 when the charge will be 5% of the list price and increasing to 13% in 2017/2018 .

As business owners also have to pay for the car as well as the tax on the benefit in kind, it needs to be considered carefully whether the tax savings to the company make it worthwhile paying the tax on the car and fuel benefit. For most the tax charged is too high for it to be worthwhile, and a better option is to charge business mileage to the company, and then take additional dividends from the company which would have been used to pay for the company car.

This area can be complicated please seek advice before obtaining a company car if you have any queries please give Andrew or Jackie a call.

Castletons Accountants