How Much Tax Do You Pay On A Company Car

Tax Liability

The tax liabilities of company car use depends on the car’s taxable value, the employees’ annual income, and the type of fuel on which the car runs. It is important to understand the different tax regimes that apply to company cars to accurately calculate tax liabilities. The taxable value of a company car depends on the model of the car. Generally, diesel cars are more expensive than petrol cars, though this rule does not necessarily apply to all models. There is also a differential rate applicable to cars based on their CO2 emissions. For example, cars with emissions of 130g/km and lower will benefit from a lower taxable value.
Different tax rates may be applicable according to the employees’ annual income. Those who are presently on the ‘standard rate’ for income tax, which is 20%, will be subject to 20% of the value of their company car as tax. Employees who are on the marginal rate (below £123,000 in 2017-2018) can pay up to 40% tax. Those who are on the additional or higher rate (above £123,000 in 2017-2018) pay an increased rate on company cars. Such employees may also be liable for an additional rate of tax.
The type of fuel the car runs on also affects the tax that must be paid. Diesel cars are more expensive than petrol cars, so the tax payable on diesel cars is higher. This is due to the higher CO2 emissions of diesel cars. It is worth noting that petrol cars may also incur a higher rate of tax if they are extremely fuel-inefficient.

Vehicle Excise Duty

In addition to the tax payable on a company car, the owner is liable for what is known as Vehicle Excise Duty (VED). This is a fee that is payable for the privilege of driving a car on the road and is subject to an annual fee, payable by all drivers regardless of their tax status. VED is based on the value of the car and the CO2 emissions. Cars with emissions of up to 130g/km are liable for the lowest rate of VED and those with emissions exceeding 130g/km are liable for a higher rate of VED.
The VED payable on a company car is liable in accordance with the same criteria as the individual rate of VED, with the difference being that it is calculated as a percentage of the taxable value of the car. As with the individual rate of VED, the VED payable on a company car is subject to a sliding scale and is determined by the CO2 emissions of the car.

Capital Allowances

Another tax-related cost associated with owning a company car is the capital allowance. This is a tax relief that is granted in the form of an allowance for the purchase of vehicles and equipment used for business purposes. The relief is available for certain vehicles, such as cars and commercial vehicles, and can be claimed as an allowance against taxable profits.
The capital allowance is generally based on the CO2 emissions of the car and is applicable at a rate of 18% or 8%. The rate of allowance depends on the CO2 emissions of the car and it is subject to a sliding scale. For cars with emissions of up to 130g/km, the rate of capital allowance is 8%. For cars with emissions of over 130g/km, the rate of capital allowance is 18%.

Gas, Oil and Service Costs

Alongside the tax costs associated with company cars, there are also additional costs associated with owning such a vehicle. Gas, oil and service costs are all payable in addition to the tax costs.
The cost of petrol, diesel and other fuels must be taken into account when calculating the cost of having a company car. The cost of the fuel will vary depending on the model of the car and the type of fuel used, so it is important to factor this into the overall cost of owning a company car.
The cost of servicing a company car must also be taken into account. The cost of servicing will vary depending on the make and model of the car, and so it is important to factor this into the cost of having a company car.

Mileage Allowance Payments

When employees are required to use their cars for business purposes, they may be eligible to claim Mileage Allowance Payments (MAPs). These payments are intended to help employees cover the costs of running a car for business purposes, and they are subject to a set rate, which is calculated according to the distance travelled.
Employees who are required to use their cars for business purposes are entitled to make MAPs claims, provided that the car is used exclusively for business purposes. The MAPs rate is calculated as 45p per mile for the first 10,000 miles, and 25p per mile for every mile after that.

Insurance

As with any vehicle, company cars must be insured. Insurance for company cars is the responsibility of the employer and is usually the same as that for employee vehicles. It is important to ensure that the appropriate cover is in place to cover the vehicle, its contents and any liability that may arise due to its use. The cost of insurance will vary depending on the make and model of the car, and the type of cover taken out.

Tax-Efficient Strategies

There are a number of tax-efficient strategies that can be employed when considering the taxation of company cars. These include making use of the capital allowance and ensuring that the car is used exclusively for business purposes. Additionally, it is important to ensure that the vehicle is registered in the correct tax class to ensure that the right level of tax is paid.
Tax experts can provide advice on the most tax-efficient way to set up a company car, and it is important to get advice from an experienced professional in order to ensure that the correct tax liabilities are paid.

Environmental Considerations

When choosing a company car, it is important to consider the environmental impact of the vehicle. Cars with high emissions may incur higher taxes and may also be subject to additional charges, such as the London Congestion Charge. It is therefore important to consider the environmental impact of the car when making a decision.
The use of cars with low emissions can also be beneficial for companies, as they may be eligible for tax relief, as well as a number of other benefits. These benefits may include reduced parking fees, access to low-emission zones and discounts on motor insurance.

Financing and Leasing

When considering the purchase of a company car, it is important to consider the various financing options available. These include purchasing the car outright, taking out a loan, or leasing the vehicle.
Purchasing a car outright is often the most cost-effective way of owning a car and has the advantage of avoiding any monthly payments. However, it is important to consider the tax implications of purchasing a car outright before doing so. Taking out a loan may also be an option and can be more financially beneficial than outright purchase, as the loan repayments can be offset against taxable profits.
Leasing a vehicle may also be an option and can be a particularly cost-effective way of owning a car for business purposes. Leasing a car has the advantage of ensuring that the car is up to date, as lease agreements often require the car to be replaced after a certain period of time.

Fuel Costs

Fuel costs are an important consideration when owning a company car. The cost of fuel will depend on the make and model of the car and the type of fuel used. It is important to consider the average fuel cost when making a decision as to which car to purchase, as this will ensure that the costs of running the car are accurately estimated.
It is also important to consider fuel efficiency when choosing a company car. An efficient car is more likely to be more cost-effective in the long run, as it will reduce the amount of fuel consumed and therefore the overall running costs.

Conclusion

Owning a company car has a number of associated costs, including tax liabilities, vehicle excise duty, capital allowance, servicing costs, insurance and fuel costs. It is important to be aware of all these costs and the associated tax implications in order to ensure that the right level of tax is paid and that the company car is operated in a cost-effective manner.

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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