Company cars are a valuable perk but come with tax implications. As a small business owner, understanding how to manage company car tax efficiently can lead to significant savings. Here’s a guide from Beavis Morgan on navigating company car tax.
What is Company Car Tax?
Company car tax is levied on employees who are provided a vehicle by their employer that can be used for personal trips, including commuting. The tax amount depends on the employee’s income, the car’s CO2 emissions, and the car’s P11D value – the list price, including VAT and any delivery charges, minus the first year’s road tax and registration fee.
Calculating Company Car Tax
To calculate the tax due, identify the CO2 emission band of the car, which determines the Benefit-in-Kind (BIK) rate. The BIK value is then multiplied by your income tax bracket rate (20%, 40%, or 45%). You can also use HMRC’s company car tax calculator for precise calculations.
Managing and Reducing Your Company Car Tax
- Opt for Greener Vehicles: The greener the car, the lower the BIK rate. Consider vehicles with lower CO2 emissions to reduce the taxable benefit amount. Hybrid cars, depending on their electric range, may also offer tax efficiencies.
- Consider Electric Vehicles (EVs): With BIK rates at just 2% for fully electric vehicles, opting for an EV can dramatically decrease your company car tax liability. Plus, EVs are currently exempt from Vehicle Excise Duty (VED) until 2025.
- Be Mindful of Optional Extras: Extra features on the car can increase the P11D value, thus raising the tax. Consider if luxury add-ons are necessary or if they could be skipped to keep the taxable value down.
- Review and Update Your Tax Code: Ensure your tax code accurately reflects your company car benefit. HMRC should automatically adjust your tax code when you receive or relinquish a company car, but it’s crucial to confirm the changes to prevent overpaying or underpaying tax.
- Self-Assessment Clarity: If you complete a self-assessment tax return, accurately report your company car and any fuel benefit figures. Your employer’s P11D form will provide the necessary details.
- Engage Expert Advice: Complexities can arise when dealing with company car tax, especially if your circumstances change. Beavis Morgan offers expert advice to ensure you’re making informed decisions about your company car benefits and tax liabilities.
Beavis Morgan’s Expert Assistance
Managing company car tax doesn’t have to be complicated. At Beavis Morgan, we specialise in helping small business owners and their employees understand and optimise their tax positions regarding company car benefits.
Whether you’re considering the best vehicle options for tax efficiency or need assistance adjusting your tax code, our team is here to help you navigate the process smoothly and cost-effectively.
For further guidance on company car tax management or to discuss your business needs, please contact your usual Beavis Morgan partner or email info@beavismorgan.com. We’re committed to driving your business forward with tailored tax solutions.