How Much Is Company Car Tax

The concept of company car tax may seem complicated and confusing. This article aims to help demystify the sometimes bewildering world of company car tax and the regulations surrounding it. It will provide an outline of how company car tax is calculated and any relevant tax considerations that should be taken into account when deciding whether or not to purchase a company car.

In the UK, all employees driving a company car are legally required to pay company car tax. This type of tax is calculated based on a number of factors, such as the value of the car, the type of fuel it uses and its CO2 emissions. The amount paid is determined by the tax band of the car and by the employee’s personal tax rate.

Company cars are taxed at a different rate to privately-owned vehicles. This is due to the fact that the employer can claim a different portion of the car’s value from the taxman, ultimately reducing the amount of tax the employee has to pay. For instance, the employer can claim 45% of the cost of a car with a CO2 output of 101g/km of CO2 or lower, reducing the employee’s tax rate.

The amount of company car tax that must be paid will depend on the tax band of the car. All cars that emit more than 111g/km of CO2 are subject to a flat rate tax of 35%. Cars that emit between 91-110g/km of CO2 are subject to a sliding scale tax of ranging from 9% – 25%. Those cars that emit 101 – 170g/km of CO2 are taxed at 21%.

Typically, electric cars or hybrid cars that produce less than 50g/km of CO2 are exempt from company car tax, as well as cars which are petrol-electric hybrids and also diesel-electric hybrids.

For cars that are solely powered by electric, no company car taxation is required, as the cost of all running maintenance for this type of car is mostly covered by the government. For instance, electric cars that emit no more than 50g/km of CO2 are exempt from VED (vehicle excise duty) and the cost of any public car charging points can be claimed against a company’s taxable profits.

In certain cases, the company and the employee may be both be able to benefit from special tax exemptions. For instance, employers may be able to claim a tax exemption for cars that qualify as ‘pool cars’, meaning they are used by more than one employee. Similarly, first-year capital allowances may be available for cars that are purchased by a company, giving tax relief on the purchase price.

Environmental Considerations

As well as the amount of company car tax paid, environmental considerations should also be taken into account when deciding which type of vehicle to purchase. As mentioned previously, cars that produce more than 111g/km of CO2 are taxed at a flat rate of 35%, while less polluting vehicles will attract a lower rate of taxation.

For example, electric cars and hybrid cars that produce less than 50g/km of CO2 are exempt from company car tax. In addition, there are tax reliefs for companies that invest in cars that have a lower CO2 emission rate, such as electric vehicles. This can be an attractive option for companies, as it allows them to reduce their carbon footprint and save money at the same time.

A company’s decision to invest in a more environmentally friendly car will not only reduce its overall tax bill, but can also be beneficial from an image perspective, as green cars are usually associated with eco-responsibility and sustainability.

Fuel Types and Running Costs

Another important factor to consider when purchasing a company car is its fuel type and the running costs associated with it. Petrol and diesel cars are considered the most cost-efficient option, as they are cheaper to purchase and have lower running costs per mile when compared to electric and hybrid vehicles.

However, electric and hybrid cars become increasingly cost-efficient over time due to their low maintenance costs and their potential to incur tax savings. In addition, the government currently offers grants of up to £3,500 to companies that purchase electric cars, further reducing the cost of ownership.

When making its decision, a company must consider how a car will be used and the frequency of its journeys. It must also be aware of the fuel type and its associated running costs, to ensure it is not spending unnecessarily.

Employee Benefits and Incentives

It is also important to consider the benefits and incentives a company car can bring to an employee. For instance, having the use of a car can be seen as a status symbol by a potential new employee, so it can be beneficial for a business to provide a car to attract new talent.

In addition, providing a company car as a perk to certain employees can help to improve morale and job satisfaction. This in turn can lead to improved performance, as employees who feel valued and appreciated by their employers are more willing to go the extra mile.

Finally, a company car can also help to increase productivity, as it provides employees with a means of quickly travelling to different sites or locations for meetings and other work-related activities.

Tax Considerations

Before a company makes a decision to purchase a company car, it is important to consider the tax implications, both for the company and the employee. The amount of tax that a company car attracts may differ depending on its fuel type and emissions, so a company is advised to compare different vehicle options to see which is most tax efficient.

In addition, companies should factor in the personal tax rate of the employee who is likely to be driving the car, as this may influence the overall sum that must be paid. Furthermore, any additional costs associated with the car, such as the price of fuel, must also be taken into account.

Finally, companies should consider whether any tax exemptions or reliefs available. For example, cars that qualify as ‘pool cars’ may be eligible for a tax exemption, while cars that produce less than 50g/km of CO2 also carry reduced tax rates.

Insurance Considerations

When purchasing a company car, businesses should consider the cost of any insurance that may be required. Insurance costs may vary depending on the type of car, its fuel type and its CO2 emissions.

For example, cars with higher CO2 emissions are usually associated with a higher insurance premium due to their increased risk of causing pollution. In addition, electric and hybrid cars may also require additional insurance for their battery and other electrical components.

It is also important to consider any third-party insurance that may be necessary for company drivers. This type of insurance covers drivers for any damage caused to another vehicle or property, and can be beneficial in the event of an accident or an unforeseen incident.

Conclusion

A company car can be a valuable asset for businesses, but it is important to understand the tax implications associated with it. Companies should factor in their overall tax bill, as well as the personal tax rate of the driver and any relevant tax exemptions or allowances that may be available.

Furthermore, businesses must also consider the environmental impact of the car, as well as its running costs and insurance requirements. By weighing up all these factors, businesses can make an informed decision when purchasing a company car and ensure they are taking advantage of any relevant tax savings.

Marjorie Turcios is a seasoned leader and management expert with over 25 years of experience. She has held various leadership positions in private industry, government, and education. She is an advocate for creating win-win solutions and has worked to create successful, lasting change in corporations and organizations. Marjorie is an award-winning author of several books on leadership, mentoring and coaching, and effective communication skills. Her passion is to help others discover their potential and reach new heights in their professional life through her writings. Marjorie resides in Dallas, Texas where she enjoys spending time with her family, traveling to different places around the world, and speaking at conferences about her areas of expertise.

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