What is a Company Car?
A company car is a car owned by a business or employer and is assigned to an employee to use for business activities. In some cases employees are provided with a personal salary in return for their use of the car, otherwise the company may just reimburse employees for mileage expenses or fuel costs. In either case, the company pays for the purchase, maintenance and repair of the vehicle. Companies typically use company cars for business travel, visiting clients, for transportation of goods and for other business activities.
What Difference Does Tax Make?
When an employee uses a company car, they are subject to a variety of tax implications – namely, taxation on the use of the vehicle. The amount of tax liability varies depending on the type of use, the employer’s tax status and the employee’s salary. For example, if company cars are used for personal trips then the employee will be liable to pay the benefit-in-kind tax on the use of the car. The amount of tax is based on the list price of the car when new, multiplied by the employee’s tax bracket.
In addition, there is income tax to be paid on company cars. If the company pays for employee mileage or fuel costs, these are considered company benefits and will be taxed as part of the employee’s salary. Companies may also offer other fringe benefits in return for the use of the car, such as free or discounted car repairs or insurance, which are also taxed as part of the employee’s salary.
Advantages of Using a Company Car
There are several advantages to using a company car. By doing so, the company can save on the costs of purchasing and maintaining the vehicle, as well as the fuel costs. In addition, the employee is able to use the car for business purposes without needing to own their own vehicle, and they may enjoy certain fringe benefits such as discounted car repairs, insurance and more.
Furthermore, using a company car can reduce the employee’s tax burden, as they do not need to pay the benefit-in-kind tax on the use of the car – a saving which can be significant depending on the employee’s tax bracket. Also, any fuel or mileage costs reimbursed by the company are usually tax deductible.
Disadvantages of Using a Company Car
There are also certain disadvantages to using a company car. As mentioned previously, the employee is liable to pay the benefit-in-kind tax on the use of the car, and this can be a significant amount for high earners. Furthermore, if the employee does not use the car solely for business purposes, they may be liable to pay additional taxes such as income tax on any reimbursement for personal mileage or fuel costs incurred.
In addition, the employee may not have the same level of freedom when it comes to choosing the car or where to go. The company may choose a car that the employee does not prefer, or the employer may set certain limitations on the use of the vehicle such as where the employee can drive and whether they can use it for personal trips.
The Pros and Cons of Company Cars
When considering using a company car, there are a number of pros and cons to take into account. The advantages of using a company car can include savings on car expenses and taxes, as well as certain fringe benefits such as discounted repair costs or insurance. However, there are certain disadvantages such as tax liabilities, lack of freedom over the car and additional taxes on personal use of the car.
Top Tips for Choosing a Company Car
When it comes to choosing a company car, there are a few key points to consider. Firstly, it is important to think about the employees’ needs – from the type of vehicle and the size of the engine, to the running costs and emissions. It is also important to look into any company policies and taxation issues that may affect the use of the car.
Additionally, it is important to factor in the expectations of the employee. For example, some employees may prefer a car that is economical or low-emission, while others may prefer a car with more power. It is also important to consider the personal preferences of the employee, such as the colour or brand of the car.
Fuel Tax on Company Cars
When it comes to fuel costs, there are various tax implications to consider when using a company car. Generally speaking, the company must pay for any fuel costs incurred by the employee, and these are considered a company benefit and as suchthey must be reported on the employee’s P11D form for tax purposes. Additionally, any payment for fuel must also be reported to HMRC and any VAT paid on the fuel must be reclaimed by the company.
For business trips, it is possible to reclaim the VAT on the fuel and in turn reduce the amount of tax payable by the employee. However, it is important to note that if the car is used for any personal trips, then the employee may be liable to pay income tax on any fuel costs incurred.
Tax Considerations for Business Use
When it comes to business use of company cars, there are certain tax implications that must be taken into account. Firstly, any profit made by the company on business-related use of the car is liable to taxation. This means that any mileage costs or fuel costs which are reimbursed to the employee must be reported on the employee’s P11D form for taxation purposes.
In addition, any company profits made on business trips by the employee may be liable to capital gains tax. Furthermore, if the car is used for any private trips, then the employee will be liable for income tax on any mileage or fuel costs incurred.
Environmental Considerations for Company Cars
When it comes to company cars, there are also environmental considerations to be taken into account. Companies must ensure that all vehicles used for business purposes are as fuel-efficient as possible, in order to minimise their carbon footprint and reduce their environmental impact. It is important to remember that the more fuel-efficient a car is, the less the company and its employees will pay in fuel costs.
To this end, companies may consider investing in hybrid or electric vehicles, or alternatively providing employees with an allowance for fuel costs. This will reduce the employee’s tax burden and help the company to minimise its carbon footprint.
Insurance and Maintenance of Company Cars
When it comes to company cars, it is also important to consider the costs of insurance and maintenance. Firstly, companies must ensure that the car is adequately insured in order to protect their business and its employees. Companies may choose to opt for a comprehensive insurance policy which covers any potential damages which may be caused by the car.
In addition, it is vital to ensure that the car is well-maintained in order to protect the safety of the employee and ensure that the car is running efficiently. Companies may choose to provide employees with an allowance for car repairs or maintenance, or alternatively they may choose to opt for an extended maintenance package.
Conclusion
When it comes to using a company car, there are various tax considerations to be made in order to ensure correct taxation and avoid any costly fines. It is important to consider the various benefits and disadvantages of using a company car and to factor in any environmental considerations. Additionally, companies must ensure that the car is well-insured and well-maintained in order to protect their business and its employees.
