Company cars can be very expensive.
For a petrol car in the mid-range of CO2 emissions, say 125 g/km, the car benefit is 30% of the list price of the car. If the company pays for any private fuel, the fuel benefit is 30% of £25,300. If the list price of your car is £20,000 then your total car and fuel benefit is £13,590 and you will pay tax each year on this amount. If you’re a higher rate (40%) taxpayer, the tax bill is £5,436 annually.
Of course, the company can claim some tax relief on its costs. Capital allowances can be claimed at a rate of 6% per year on a reducing balance basis. For a £20,000 car this is £1,200 in the first year, £1,128 in the second year and so on. Tax relief on this is currently at 19% – £228 tax saved in the first year. All running costs such as insurance, fuel, servicing, repairs and vehicle tax can be deducted but with a 19% tax saving this expenditure would have to exceed £26,000 before it can match the cost for the higher rate taxpayer.
As a result, most company director / shareholders are now purchasing their car privately instead and charging the company for their business miles at 45 per mile for the first 10,000 miles in the tax year and 25p per mile after that. This provides tax free income for the individual and an equivalent tax deductible expense for the limited company.
Has this changed with the introduction of electric and hybrid vehicles?
Car benefit in kind
For fully electric vehicles the benefit in kind is just 2% of the list price. For Hybrid vehicles the percentage benefit depends on the CO2 emissions, and if these are less than 50 g/km on the electric mileage range. There’s a sliding scale all the way down to 2%.
Car fuel benefit in kind
There is no fuel benefit for fully electric vehicles. For hybrid vehicles, there is a benefit based on the same £25,300 figure as for petrol cars above – but the percentage is the same as for calculating the car benefit so depending on the CO2 emissions and range of the vehicle could be as little as 2%.
Electric and hybrid vehicles do need charging though – so of course the tax consequences of this need to be considered.
Providing charging points for company car users
No benefit in kind charges arise at all if the company provides charging points to company car users, either at their place of work, or at their home.
(Please note that the position is not the same for charging points provided to employees using their own cars, or where the employer reimburses the employee for costs they incur, so do take care with this.)
