By Angela Backhouse, Accountant at Hive Business
If your company buys a car for you to drive and you’re able to use that vehicle for personal transport outside of work, then it’s considered a company car but it is seen as having a monetary value of using it privately. Because of this monetary value attached, having a company car results in a Benefit In Kind (BIK) and this is treated as additional income; the amount is calculated using a percentage of the list price of the car.
HMRC determines the percentage amount on that list price, based on the amount of CO2 emissions a car emits. The cleaner your car is (i.e. the lower your CO2 emissions are), the lower the percentage charged.
It is also worth noting that Diesel vehicles carry a 4% surcharge over petrol models with similar emissions, because they emit greater amounts of harmful pollution; be sure to check this if you’re buying a diesel company car.
The best advice is if you do buy a company car, go green and be rewarded with a lower tax bill!
An alternative is to buy your car privately and claim mileage. Because of the increase in the BIK percentages you will find that you need to consider how much the car is costing you (and saving you) and how much the BIK will be for that car.
Without delving too much into the maths, if the BIK over say 3/4 years is more than the cost of the car, it will be cheaper in the longer term to pay for the car privately, than through the company and you use it privately.
For example, if you were a basic rate tax payer and bought a car for say £12k, this would cost you around £3k tax per year; in just four years you would have paid as much in personal tax as it would have cost you to buy the car privately.
In another example, if you were a basic rate tax payer and you bought an all-electric car for say £70k, this you would pay around £1,500 tax per year; luxury car and minimal personal tax!
Get in touch to discover the most tax efficient way of spending your money and buying the things you need for your business. Call 01872 300232 or email hello@hivebusiness.co.uk.
