Exclusive Business Use or Some Personal Use?
HM Revenue & Customs rules state that if a Company Car is only used for business journeys, no Benefit-in-Kind (BIK) tax needs to be paid
However, this rule comes with its complexities. If you intend to use a Business Company Car exclusively for work-related activities like visiting clients or driving between offices, you are not obligated to pay BIK tax.
However, this means the vehicle should not be used for ‘private use’ at all. The term ‘private use’ means any journey that does not fall within your work responsibilities. It includes seemingly irrelevant things like driving to pick up groceries on your way home from work.
Private use also includes commuting to and from work. So if you work from home, you would be ok and this would be included but if you drive to work, this would not – the commuting would be classed as personal use.
However, if you have a company car (rather than a company van), proving exclusive business usage can be difficult and HMRC may likely contest it.
To substantiate your claim of sole business use, you must maintain meticulous records demonstrating that there are no instances wherein the car has been used personally.
Furthermore, ideally, it should be left at your place of employment when not in use so as to avoid any chance of private use. Ensuring strict adherence to these guidelines can help leverage the benefits of your business Company Cars efficiently.
Do the CO2 emissions on the car affect the cost?
In the UK, the amount of CO2 your company car emits affects how much tax you pay. Cars with lower emissions are taxed less. This is part of the government’s effort to encourage eco-friendly business choices.
When you get a company car, your tax rate depends on several factors, including its CO2 levels and fuel type. Your car will fall into a income tax rate band, which ranges from flat rate tax of 0% to 37% based on its list price.
Considering CO2 emissions on best company cars is important for any business owner thinking of getting a company car. It affects your costs and could improve your next company car’s image, as more people are concerned about the environment.
So, it’s crucial to understand how CO2 emissions impact the cost of having a company car in the UK before making your decision.
How is the deemed cash benefit in kind calculated?
The calculation of a company car’s deemed cash benefit is calculated by two numbers: the vehicle’s list price and its CO2 emissions. This strategy aims to incentivise companies to choose more environmentally friendly options for their business company cars.
This deemed cash benefit in kind (BIK), also known as the P11D value is calculated by multiplying a percentage, based on the car’s CO2 emissions, with the vehicle’s list price. It’s important to note that optional extras are included within this list price, which can inflate figures significantly.
The UK government maintains specific tables that correlate CO2 emission thresholds with a corresponding percentage; these range from 2% (for zero-emission vehicles) up to a cap of 37% (this figure is different in Wales).
For instance, plug in hybrid cars or hybrids, if your chosen company car emits between 51-54 g/km, you would apply a 15% rate to your calculation.
This percentage will increase annually under current UK laws but as far as 2026 figures, the top rate will stay at 37%. Therefore, understanding these changes can help businesses predict future costs associated with maintaining a Company Car UK based fleet.
You can get future year figures here.
How does my company claim for car cost?
When your business opts for a Company Car in the UK, it is essential to understand the process of claiming the costs associated with it. The first step in this process is to ensure that the company car tax purposes in question is wholly and exclusively used for business purposes.
This allows your firm to claim back all expenses related to its use, including insurance, maintenance, and repairs.
However, if you use the company car for personal needs – even occasionally – these expenses cannot be deducted from your taxable profits.
As per HMRC rules, if a Business Company Car is purchased by your Limited Company instead of lease, it falls under capital expenditure. It means that you can claim tax relief on these costs via Capital Allowances.
The percentage of cost that can be claimed depends on the CO2 emissions level of the vehicle; lower-emission vehicles qualify for higher allowances.
For instance, cars that are new and unused, pure electric cars or cars whose CO2 emissions are 0g/km (or car is electric) are eligible for a 100% First Year Allowance (FYA), which means their full price can be deducted from taxable profits.
It is crucial to note here, though, that these figures are subject to change as part of ongoing environmental initiatives by the government.
While claiming costs associated with your Company Car within UK Limited Companies involves certain complexities due to regulations surrounding CO2 emissions and personal use limitations, proper planning and adherence can ensure substantial savings on tax liabilities while enjoying the benefits offered by a company vehicle.
What if my company leases the car?
When considering a business company car, an alternative to purchasing is for the company to lease the vehicle. Leasing provides a viable option that gives its own set of advantages and considerations.
A point to remember when opting for leasing as an approach is that the lease payments can be claimed as a business expense, reducing the corporation tax bill.
However, only 85% of the lease cost is allowable if the CO2 emissions on the car exceed 50g/km.
To begin with, contract hire or finance leases are common choices for businesses looking at leasing options. The distinction between these two methods lies primarily in how they are treated for VAT purposes – a factor which can substantially impact financial outcomes depending on individual circumstances.
Delving into these aspects with due diligence is advisable to derive maximum benefits from your leased business company car.
In terms of understanding VAT implications on leased vehicles, one should note that companies can reclaim 50% of VAT on contract hire payments if there is any private use of the vehicle and 100% if it’s exclusively for business use see: Link to HMRC
On finance leases, VAT can often be reclaimed upfront on the cost of the car but not on residual value amounts payable later in contract life.
A key factor influencing decisions around leasing a company car UK based or otherwise relates to Benefit-in-Kind (BiK) tax implications.
In essence, when an employer provides low benefit in kind tax, or non-cash benefits – such as a company car – employees must pay tax known as ‘benefit-in-kind’. The BiK rate for company cars depends largely upon their CO2 emissions: Higher-emission cars incur higher BiK rates as discussed earlier in this article.
Can my company pay for the fuel?
Regarding Company Car fuel, fuel costs can often generate confusion. Your company car drivers can manage payments related to fuel.
As a business owner, you may opt for your Limited company to bear the burden of fuel expenses – a choice that seems enticing on surface value. However, there are accompanying tax implications that must be taken into account.
The pivotal aspect here is understanding the ‘fuel benefit charge.’ When your limited company pays for all fuel used in new cars (including personal trips), it becomes eligible for this specific charge.
The calculation method involves multiplying a ‘set figure’ determined by HM Revenue and Customs (usually updated annually) by the car’s appropriate percentage, which is contingent on its CO2 emissions.
This can lead to hefty tax demands if not carefully managed and monitored. To circumvent such financial pitfalls, many owners operating from a Business Company Car perspective choose an alternative path – reimbursing their limited company for private fuel use based on HMRC’s advisory rates.
This approach ensures no ‘fuel benefit in kind’ arises as it effectively segregates business travel from private journeys.
Thus, it provides both clarity and control over associated expenditures and fuel economy.
However, whether such an arrangement works best depends largely on individual circumstances – particularly how often the Company Car is used privately versus professionally.
VAT on Private Fuel Use?
The realm of VAT on private fuel usage with a business company car is again, complex (we’re seeing a bit of a theme here!).
It is important to understand that if your UK limited company pays for all fuel (business and private), but you as the employee, repay the cost of private fuel, then no benefit-in-kind arises.
On this basis, your company can reclaim 100% of VAT on fuel costs.
However, this requires proper mileage logs to demonstrate what portion of use was for business purposes.
For those who choose not to separate their business and personal journeys meticulously, the Company Car system provides an alternative called the Fuel Scale Charge.
This system allows companies to reclaim all VAT on fuel, providing they pay a scale charge which is based on the CO2 emissions of the car.
The scale charge covers private use and negates detailed journey logging requirements.
However, it’s worth noting that this can sometimes result in more VAT being paid than reclaimed if there’s only minimal private use. Nonetheless, assessing whether claiming back VAT makes financial sense in your particular situation is critical.
It may be more cost-effective not to use a company car for personal journeys, especially considering that any identified non-business travel on best company cars could result in unexpected tax bills and penalties from HM Revenue & Customs.
In essence, understanding how VAT impacts private fuel usage when managing a company car requires careful consideration from multiple angles – tracking mileage religiously or grappling with Fuel Scale Charges, weighing up potential tax liabilities against savings, and determining whether claiming back VAT will indeed be an economically sound decision.
What’s the alternative to a company car?
Many individuals contemplating using or taking on a Company Car for their business may also consider alternatives to a company car. One viable alternative is utilising a personal vehicle for business-related journeys and claiming a mileage allowance.
This approach allows employees to use their personal car but receive allowances from their employer or business for business travel. An individual can claim tax-free Mileage Allowance Payments up to the approved amount, which currently stands at 45p per mile for the first 10,000 miles and 25p per mile beyond that.
Another noteworthy alternative pertains to the Car Salary Sacrifice Scheme. Under this scheme, an employee gives up part of their salary in exchange for a non-cash benefit – in this case, the Business Company Car.
It’s particularly beneficial if an employee is in higher tax brackets as it could result in significant cost savings when compared to owning a car privately. However, understanding its tax implications is essential before opting for it.
Furthermore, there are ‘Car Cash Allowance’ schemes where employers provide employees with cash allowances instead of providing them with company cars – enabling them to buy or lease one themselves.
This approach offers more flexibility as it provides an opportunity for employees to choose vehicles that suit their personal circumstances – they are not restricted by company policy on their own vehicle choice.
Another avenue worth considering is leasing vehicles via Personal Contract Hire (PCH). Unlike traditional car purchasing methods which involve financing or buying electric car outright, PCH allows individuals or businesses alike to use a vehicle over an agreed period while making regular monthly payments.
At the end of that term, the car is returned without any further obligations – leaving room for another brand-new lease agreement if desired.
While having a Company Car can offer certain benefits and conveniences such as not having to worry about maintenance costs or depreciation values of most company cars; looking into these alternatives may prove beneficial depending upon individual circumstances and requirements.
In conclusion, integrating a company car into your UK limited company is feasible and financially advantageous. However, it’s crucial to weigh the numerous factors involved. These include considerations such as who will use the vehicle – exclusively for business or with some personal application – and the accompanying tax implications.
The car’s own carbon dioxide emissions play a significant role in determining costs as well, underscoring the importance of being environmentally conscious in your choice. Another central element is understanding how to calculate deemed cash benefits, which can vary depending on whether you lease or buy outright.
Navigating these complexities may seem daunting, but a proficient accounting professional can be invaluable in helping you maximise potential savings and benefits for your business and yourself. On fuel expenses, there’s an opportunity for VAT recovery if used solely for business purposes, though restrictions apply if there’s any private utilisation involved.
Meanwhile, evaluating alternatives to a conventional company car, such as using company car allowance schemes or even leveraging technology options like remote work or teleconferencing, could provide surprising benefits. Employing a Company Car under your UK Limited Business Company provides various tax efficiencies and offers an avenue to bolster employee motivation through non-monetary compensation schemes.
With careful planning and consideration given to each factor explored in this article, you can confidently make this decision, knowing that it serves both personal welfare and business interests best. The world of the Company Car UK isn’t one without its complexities; however, those able to navigate it effectively will undoubtedly reap its rewards.