Introduction
A company car is an asset provided to a company’s employee, such as a leased vehicle, that is used primarily for business purposes. It is important to note that company cars are subject to taxation, regardless of if they are used exclusively for business purposes or not. In this article, we will explore the tax implications of company cars, relevant tax breaks, and the pros and cons of company car usage.
Tax Implications of Company Cars
The two main tax implications of company cars are income tax and employer’s national insurance contributions. In the case of income tax, company cars are classified individual assets, meaning the employee’s tax rate will depend on their total income for the year. In this case, any income from a company car will be added to their total income and taxed accordingly for the year. Employer’s national insurance contributions are calculated with the same principal, with the employee’s national insurance rate applied to the value of the company car.
Employee Tax Breaks
Employees, however, may be eligible for a range of tax breaks when using company cars, depending on the value and personal usage of the vehicle. Employees can take advantage of Capital Allowances, which allow the depreciation of the car’s cost over several tax years; this allows them to offset a portion of the income tax. Meanwhile, the Value Added Tax, which applies to company cars, can be recovered if the employee maintains an exclusive business use of the vehicle. Lastly, employee contributions to fuel costs which were used for business purposes can also be reduced.
Advantages & Disadvantages of Company Cars
The advantages of company cars for businesses and employees are apparent. Companies are able to provide their employees with a convenient and safe means of transportation for business purposes, while employees have access to a car at a reduced cost. Additionally, companies may use company cars as a way of incentivizing employees, as well as potentially enjoy tax advantages when providing a company car as a benefit.
However, there are also some drawbacks associated with company cars. For example, supplying a company car requires an investment in terms of purchase and maintenance; this cost may simply outweigh the benefits. Moreover, cash allowances or salary packaging may prove to be a more cost-effective option for the company and may result in fewer tax implications for the employee.
Conclusion
Company cars are a convenient asset that companies offer to employees, often as an incentive to attract and retain talent. As a result of their tax implications, both the company and employee must carefully consider the advantages and disadvantages before going ahead with the arrangement. By doing so, they are able to maximize the effort and money invested in the company car, as well as their respective tax benefits.
The Different Types of Company Cars
Company cars come in a variety of shapes and sizes, and can be limited only by a company’s budget. Depending on the reputation of the company and the seniority of the employee, company cars may range from an economy car to an executive sedan. When deciding on the type of car to provide, companies should take into consideration cost, comfort, safety, prestige, and fuel efficiency.
Insurance Considerations
Another important factor to take into account when providing a company car is insurance. For smaller companies, securing insurance for the company car should be relatively easy, as the driver and vehicle are both covered under the policies. However, for larger companies, it is likely that the costs associated with the insurance premiums may become increasingly complex and expensive.
Environmental Considerations
Finally, businesses must take into consideration any associated environmental impacts when supplying a company car. Such considerations include the emissions of the car, fuel efficiency, and any eco-friendly features that may help to lower emissions and thereby reduce the environmental impact.
Regulatory Requirements
In addition to these considerations, businesses must also keep in mind any relevant regulations, such as the mileage allowance payment, employee expenses, and the taxation of company cars. Depending on the jurisdiction, the relevant regulations may differ, and thus must be studied carefully in order to avoid any potential financial liabilities.
The Accounting of Company Car Expenses
When providing a company car as a business asset, companies must properly account for the associated costs. This includes both the purchase and running costs, as well as any performance bonuses or incentives that may be provided to employees. Companies must also be aware of any depreciation costs associated with the company car, as these can be deducted from the income tax due.
The Future of Company Cars
As technology advances, company cars are likely to become increasingly more efficient and eco-friendly, with electric vehicles likely to become the norm. This would reduce the cost associated with running the vehicles, as well as reduce the environmental impact of their use. In addition, companies may look to increase the scope of company cars to include services such as car sharing, allowing the vehicles to generate additional income.
