I’ve been asked a few times (per day!) about how company car tax works and whether it’s better having a company car or using your personal car and claiming mileage. As always my main response is, it depends.
What is a company car?
A company car is a car provided by a business for both the personal and business use of an employee. If your company provides you with a Van instead then under certain circumstances there will be no tax to pay.
How is it taxed?
The personal use of a company car is classed as a Benefit in Kind. You’ll pay tax on the calculated taxable benefit through your wages. How the value of the benefit is determined is based on a number of things;
- The list price of the car
- It’s CO2 emissions
- Whether you’ve financially contributed to the vehicle
As an example, let’s say your employer offers you an Audi A3, 1.5l petrol car.
The list price £28,635
CO2 emissions 118g/kg
Percentage charge 22%
Therefore the taxable benefit value is (£28,635 x 22%) = £6,300
The amount of tax you would pay on this would depend on the tax bracket you are in once the benefit is added to your taxable income. For example if you earn less than £46,350 when your salary and benefits are added together then you would pay 20% tax on £6,300 or £1,260.
This is what you would pay every year, as the company car benefit is based on the list price of the car and not its current value (ouch!).
If you are a director of the company then it’s also worth knowing that the company will owe class 1A national insurance which is currently at 13.8%. This means that the company will have to pay (£6,300 x 13.8%) £869 for providing the company car. This has to be filed and paid using the P11D system.
The total that you and the company have to pay for the year for this car is £2,129.
What about if the company provides a fuel card?
If the company pays for your fuel as well then you get taxed additionally on the fuel as a separate benefit.
The ‘value’ of fuel benefit is prescribed by HMRC and for 2018/19 stands at £23,400. This value is then multiplied by the emissions percentage used on your company car. Therefore using the example above, the taxable benefit on the fuel is (£23,400 x 22%) £5,148. Again, assuming you’re a 20% tax payer this means a cost to you of £1,029.
Again the company has to pay national insurance which is (£5,148 x 13.8%) £710.
Overall for a company car and fuel it costs;
- the employee: £2,289 in tax payments for the year
- the employer: £1,579 in tax payments for the year
Where is claiming business mileage a better solution?
Now, your other option is to buy a car personally and reclaim business mileage. Obviously the higher the mileage, the more you can claim.
The current rate is 45p per mile (or 50p per mile if you’re transporting a colleague). This rate applies to the first 10,000 business miles you do and essentially equates to £4,500 claimed. This is also tax deductible for your employer.
After the first 10,000 miles you are able to claim 25p per mile (30p per mile if you’ve a colleague on board!)
So, if you’re doing a lot of miles in a year then potentially having a private vehicle and claiming the mileage would be better for both you and your employer. But before you get excited remember that doing this means you also have to pay for the wear and tear on your vehicle whereas this would be paid by the company if you had a company car.
Again, I go back to my favourite two words, it depends. You need to work out what is going to work best for you and your business. If you like having a nice car (therefore higher taxable value) then it might be best to privately own. If you want a low emission car then company car might be best for you. Don’t forget to take in to account the miles you do as well.
Hopefully the examples used here help but give us a call if you’d like to talk about it some more.