Company car - Is it really a benefit worth having?
Date: 15 May 2015
If your employer provides a company car as part of your benefits package you will pay tax on the deemed monetary value of that benefit. The cash equivalent is essentially treated as additional salary.
The cash value is calculated using a fixed percentage of the manufacturer’s list price depending on the CO2 emissions figure and the fuel type, up to a maximum of 35%. There is a 3% supplement added for diesel fuel vehicles.
As an example the taxable vehicle benefit for the private use of a £20,000 vehicle with a CO2 emissions figure of 135 would be as follows:-
Petrol 20% x £20,000 = £4,000
Diesel 23% x £20,000 = £4,600
In addition, the provision of fuel for private use is a taxable benefit and calculated in the same way, as follows:-
Petrol 20% x £21,700 = £4,340
Diesel 23% x £21,700 = £4,991
The private fuel charge is an all or nothing benefit, so even the smallest amount of private fuel will trigger the full charge as shown above.
If you are a lower rate taxpayer and your employer offers a suitable choice of vehicle to suit both your business and personal requirements you may find that the tax on the benefit is a small price to pay.
However, if you are taxable at the highest rate, or the amount of the benefit is restricting your tax free personal allowances or eligibility to child benefit, you may wish to consider whether it is still a benefit worth having.
It may be that your employer does not provide a choice of vehicle and you may prefer to purchase your own. You would then be able to claim mileage payments from your employer at the approved rate of 45 pence per mile for the first 10,000 business miles and 25 pence thereafter. Naturally all private mileage and vehicle costs are payable personally in this case.
If you are a director shareholder it should also be considered that, unlike a general employee, you are literally spending your own money on the vehicle purchase, paying personal tax on the benefit as an employee and you are also liable to the Class 1A National Insurance liability as the employer.
Every case will be different and must be considered on an individual basis bearing in mind both work and personal requirements. The fuel benefit is quite a hefty charge but it does mean that less detailed mileage records are required. Alternatively you may not do enough private mileage to justify the tax charge.
Please note all home to work mileage is considered personal in all circumstances and detailed and accurate mileage records must be kept if the private fuel charge is to be avoided.
For more information on this please speak with your Lovewell Blake contact who will be able to talk through the options with you.