Company Cars - time to throw away the prejudices?

31st October 2014 by Robert Leggett

Many people dismiss company cars, assuming the tax will be too high.  But throw away your prejudices and there are tremendous opportunities for tax breaks.

Car Benefit

Benefits in kind are calculated by taking the original list price of the car and applying a percentage based on CO2 emissions.  So, a basic diesel Audi A4 saloon emitting 119g/kms has an 18% BIK in 2015/16.  With a £29,930 list price the BIK is £5,387, or £2,155 of income tax for a 40% taxpayer.

The provision of private fuel is generally prohibitively expensive, but do the maths to check first.

Capital Allowances

Cars emitting 130g/kms or below get writing down allowances of 18%, whereas cars emitting >130g/kms get WDA at just 8%.  At 18% it takes 12 years to get tax relief for 90% of the expenditure, whereas at 8% it takes an incredible 28 years! 

So consider utilising the 100% First Year Allowance on new cars emitting 95g/kms or less as from April 2015 this threshold reduces to 75g/kms, significantly reducing the number of eligible cars.

A New Breed

Many clients ask me “what car should I buy?”.  Obviously I can’t answer this as it is a very personal choice however, I suggest you look beyond the obvious and consider embracing the new breed of cars.

Luxury
The basic model Range Rover has a list price of £73,590 and emissions of 196g/kms, giving tax at 40% of £10,945.  However, a hybrid version Porsche Cayenne with a list price of £61,474, and emissions of just 79g/kms, delivers an income tax charge of just £2,213.  A tax saving of £8,732 a year!  Moreover, buy the Porsche new by 31 March and 100% FYA could also save you Corporation Tax of £12,295.

Small Cars
These can be efficient company cars.  But watch out!  Different specs of the same vehicle can have a big tax impact, so it is vital to check the emissions carefully.  Many owner managers get their companies to provide low emission cars to their spouse or children, paying the BIK tax themselves; very effective, especially with the cost of insurance for new driversand CT relief available.

General Motoring
The “ordinary” petrol or diesel car is increasingly unattractive tax-wise.  But consider the alternatives.  At the extreme end, the electric only Tesla Model-S offers zero emissions, a 5% BIK for 2015/16 and 0-62mph in 3.2 seconds!  At a more practical level, the hybrid and plug-in hybrid versions of more familiar brands like Volvo, Lexus etc., offer a huge reduction in the CO2 figure, with the appropriate tax benefits.

Your final choice obviously depends on you, but I would encourage you to look at the options, do the calculations, and make sure of the emissions before you commit.

For more detailed information regarding the above, please click here or contact a member of the Corporate Tax Team.


Author

Robert Leggett

Robert Leggett

Partner
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