Are you looking to buy a company car? Are you wondering how much company car tax you will have to pay? Company car tax is an important consideration when it comes to purchasing a vehicle for your business. It’s important to understand the different rules and regulations that surround company car tax so you can make an informed decision.
First, let’s look at what is meant by “company car tax” and how it works. Company car tax is a tax levied on employees who receive a company car as part of their remuneration package. This tax is calculated based on the value of the car and the employee’s earnings. Employees who receive a company car will be liable for tax on the value of their car, based on its carbon dioxide emissions rating. They may also be liable for tax on any additional benefits received in relation to the car such as private fuel, insurance, regular servicing or other running costs.
The amount of company tax that you have to pay depends on several factors including the type of car you choose and its emissions rating. Cars with lower emissions ratings are taxed at a lower rate while high-emissions cars are taxed at a higher rate. The government sets out a range of tax bands and rates for different emissions ratings which can be found on the HM Revenue and Customs website. Your company car tax rate will be determined based on which tax band your car falls into.
It is also important to bear in mind the tax implications for purchasing a company car. If a company car is purchased for business use, the company will be responsible for the tax. However, if the vehicle is purchased for private use, the employee is liable for the tax and the company is not responsible for paying it. In this situation, you should always ensure that you declare your earnings and any additional benefits you may receive as part of your company car package.
In addition to company car tax, there are also other tax considerations to be aware of such as fuel benefit tax and van benefit tax. Fuel benefit tax applies to any private fuel used in a company car and the amount of tax payable will depend on the car’s fuel efficiency rating, while van benefit tax applies to any non-business related use of a commercial vehicle. Again, you can find more information on the HM Revenue and Customs website.
Overall, company car tax is an important consideration for anyone looking to purchase a vehicle for business use. It’s important to understand how company car tax is calculated and the different rules and regulations that surround it. While it can be a complex area, understanding your obligations when it comes to company car tax can help you avoid any unwelcome surprises at the end of the tax year.
Budgeting for Company Car Tax
When it comes to budgeting for company car tax, it’s a good idea to consider the particular circumstances and company car requirements of your business. This will help you accurately calculate the likely company car tax bill so you can budget accordingly. It is recommended that you seek advice from a qualified accountant or financial advisor if you need more information or assistance.
The amount of company car tax you will have to pay also depends on the type of car you choose. For example, cars with higher emissions ratings will be more expensive to pay tax on while cars with lower emissions ratings will generally cost less. Similarly, if the car is used mainly for business travel, the cost of fuel and other running costs that you pay tax on will be reduced. As such, it is important to factor these considerations into your budgeting for company car tax.
You may also be able to offset some of your company car tax bill by investing in other green initiatives such as electric or hybrid vehicles. These alternative types of vehicles attract reduced tax rates and, in some cases, can substantially reduce the cost of your company car tax bill. Before investing, however, it is important to consider whether the cost of such vehicles is going to be worth the savings you can make on your company car tax.
Finally, you should also bear in mind that company car tax is just one aspect of running a company car. Other costs related to the car such as fuel, insurance and servicing need to be taken into account too. As such, it is important to ensure that you factor in any other associated costs when budgeting for company car tax.
How Tax Rates are Calculated
Company car tax is based on the car’s taxable value and its emissions rate. Taxable value is determined by the car’s list price and any additional benefits that come with the car such as fuel, insurance and servicing. The emissions rate is determined by the amount of carbon dioxide emissions from the car. HMRC sets out a range of tax rates and bands for each emissions rate and the rate of tax you pay will be determined by the band your car is in.
You can calculate the tax owed on a company car by multiplying the vehicle’s taxable value by the relevant tax rate for the emissions band it falls into. For example, a car with a taxable value of £20,000 and an emissions rating of 0 – 50g/km would be taxed at 10% (according to the 2020/21 rates). This means the total tax owed on this vehicle would be £2,000.
It is important to remember that the tax rates are subject to change each year and it is recommended that you check the latest rates on the HMRC website to ensure that you are up to date. Additionally, it is worthwhile budgeting for any potential changes so you can make sure you are not adversely affected when the rates are revised.
Reducing Your Tax Bill
There are a few ways to reduce your company car tax bill. Making an efficient choice of car through careful research and working with reliable dealers can ensure you purchase a more efficient vehicle at the best possible price, which could help lower your tax bill. Additionally, business use of the car can also reduce your taxable amount as you will not be subject to tax on any of the running costs associated with it.
Driving more fuel-efficiently and taking advantage of any car scrappage or low emission vehicle schemes can also help to reduce your company car tax bill. Being aware of any incentives offered by the government can be a cost-effective way to reduce your tax liability. For example, the government’s Plug-In Car Grant offers an incentive of up to £3,500 to help towards the cost of buying a new low emission vehicle.
Finally, you should also review your tax position each year to make sure you are not paying too much tax on your company car. You can do this by contacting HMRC directly or by engaging with a specialist tax advisor who can review your position and advise on potential ways to lower your tax liability.
Long-Term Savings and Investment Opportunities
By understanding company car tax and making the most of available opportunities, it is possible to make noticeable long-term savings. Investing in more fuel-efficient cars or taking advantage of the Plug-In Car Grant could help to significantly reduce your tax bill in the long-term. Additionally, any incentives available such as eco-friendly car pools or scrappage schemes are worth considering.
It is also important to bear in mind that whilst lower taxes tend to be good news in the short-term, they can have a negative effect in the long-term. This is especially true when it comes to company car tax as the savings made in the short-term may need to be balanced with any potential risks in the long-term, such as unexpected changes in tax or fuel prices.
Given this, it is important to review and update your tax position regularly to ensure that it is still in line with your overall long-term strategy. Seeking advice from an expert to consider any available options is also a wise move and can help you to make a decision that will benefit you in both the near and distant future.
Advice and Resources
When it comes to understanding your company car tax obligations, the HM Revenue and Customs website is a great source of information. Additionally, there are a range of more specialist resources available, both online and offline, which can provide in-depth guidance on company car tax and the relevant regulations.
If you find yourself in a situation where you are unsure of your tax liability, it’s important to seek advice as soon as possible. Professional tax advisors and accountants are experienced in navigating the complexities of company car tax and can provide advice tailored to your individual circumstances. They may also be able to help you find ways to reduce your tax bill.
Overall, understanding the rules and regulations surrounding company car tax and having an in-depth knowledge of the available options can enable you to make an informed decision when it comes to purchasing a company car. However, if you are unsure of your tax obligations, seeking advice from a professional is recommended in order to ensure that you stay compliant.
