Most individuals end up facing a hefty car tax bill if they own a company vehicle, for their personal use. This is why it is essential to understand the various tax rules surrounding company cars and learn how to avoid them. In this article, we will look at some of the ways that you can avoid paying these taxes and still enjoy the benefit of using a company car.
To begin with, you should ensure that you are aware of the tax implications of having a company car. The most common form of tax payable is the Benefit-in-Kind (BiK) tax. This is the tax that is payable on any asset that you use for work purposes, including a company car. It is calculated based on the list price of the car and your employer’s income tax rate.
In order to avoid having to pay for BiK tax, you should ensure that you only use the car for business use. The HMRC states that, in order to be exempt from BiK tax, you must “use the vehicle solely and exclusively for business purposes”. This means that you will not have to pay tax on the car if you can prove that it was used solely for work related activities.
It is also important to understand the difference between personal and business use of your company car. If you are using the car for any personal activities, such as commuting to and from work, then you may have to pay BiK tax on it. If you are only using it for business purposes, then you will not be liable for BiK tax. Therefore, you should keep records of your business and personal trips to ensure that you are not liable for tax on your company car.
In addition, you should consider taking out company car insurance, as this may reduce your tax liability. This is because this insurance can be used to deflect some of the costs of maintaining the car and help to reduce your BiK tax bill. Make sure you compare the different insurance policies and find the one that best suits your needs.
Finally, you should consider leasing the car instead of buying it outright. By leasing a car, you can avoid paying BiK tax and other taxes associated with owning a company car. Also, since you will not be the owner of the car, you will not be responsible for maintenance and running costs, making it a much more attractive option.
Fuel Benefit Charge
Although there is no BiK tax on using a company car, you may still be liable to pay some other charges. The fuel benefit charge is an additional charge that is payable if you have a company car and you use it for personal use. The amount of the charge is based on your car’s CO2 rating and, if you’re liable, you’ll need to submit a “Declaration of Fuel for Private Use” to HMRC.
You can avoid paying this charge by ensuring that you only use your company car for business purposes and refrain from using it for personal use. It is also important to ensure that you submit your declaration of fuel for private use in a timely manner, as failure to do so can result in fines and penalties.
VAT On Private Use
Another way to avoid paying tax on a company car is to learn about the VAT on private use. If you’re using the car for private purposes, such as commuting to and from work, then you may have to pay VAT on the car. To be exempt from VAT you must use the car solely for business purposes and not use it for any other purpose. This is something you will need to consider carefully when deciding whether or not to own a company car.
Also, if you decide to own a company car then make sure that you are clear on the terms of the lease agreement. This is important as you will be liable for any taxes or fees that arise from this agreement, so it is important to make sure that you are aware of them before entering into the agreement.
Examples Of Tax Deductions
Finally, you should also be aware that you may be able to claim some tax deductions for having a company car. For instance, if you use the car for business mileage then you may be able to claim tax relief on this, so make sure that you keep track of all your business journeys throughout the year.
Also, you may be able to claim tax relief on the cost of repairs and servicing, as well as on the costs related to running the car. These deductions can be made on any cost incurred in relation to the car and will help to reduce your tax bill further.
Income Tax On Car
If you are the registered owner of a company car, then you may also be liable for income tax on it. This is because the car is considered to be an asset and will be subject to income tax if you are the registered owner. To avoid paying income tax on the car, you should make sure that it is not registered in your name and that you do not make any profit from it.
In addition, you should make sure that you keep track of all your expenses related to the car and that you are claiming all the deductions you are eligible for. This will help to reduce your income tax liability on the car and make sure that you are not paying more than you need to.
Liability Insurance
Finally, it is important to ensure that you have liability insurance on your company car. This is because the car is used for business purposes and you may be held liable for any damages or injuries that occur as a result of an accident. Having the appropriate liability insurance will protect you from having to pay any legal costs associated with third-party damages or injuries.
Legal Representation
If you find yourself in a dispute with HMRC regarding your company car, then it is important to ensure that you take the necessary steps to protect yourself. The best way to do this is to seek legal advice and ensure that you have appropriate representation to defend you in court. Having legal representation will help to ensure that you have the best outcome possible in any dispute with the HMRC.
Introduction of Electric Cars
One way to reduce your tax payments on a company car would be to switch to an electric car. Electric cars have become increasingly popular in recent years and they are much more efficient than traditional vehicles. This means that you could save money on fuel costs and also have a much lower tax bill due to the lower emissions.
Also, electric cars are exempt from road tax, which can be a significant saving on top of the fuel costs. This makes them an attractive option for those who want to reduce their tax bills on company cars. So, if you want to enjoy the benefits of a company car but don’t want to pay too much tax then it is worth considering switching to an electric car.
Tax Breaks for Car Owners
Finally, there are some tax breaks that are available to those who own a company car. For example, you may be able to claim tax relief on the cost of running and maintaining the car, as well as tax relief on the cost of insurance. Additionally, some employers may offer tax breaks to those who own a company car, which could help to reduce the cost of the car and any associated taxes.
It is important to understand the various tax rules surrounding company cars and learn how to optimize your savings. By following the advice outlined in this article, you can make sure that you are not paying any more than you need to on your company car and still enjoy the benefit of using it.
