If you’re a business owner or an employee, you may have heard of the Taxable Benefit of a Company Car. This is a legal term used to describe the additional cost an employer may incur when they provide an employee with a company car. The Taxable Benefit of a Company Car is an amount the employee will have to pay in income tax, depending on the type of car they are provided with. In this article, we will examine what the Taxable Benefit is, how it works and how businesses can get the most out of it.
What Is The Taxable Benefit?
The Taxable Benefit is an additional cost to the employer when they provide their employees with a company car. This cost is typically expressed in terms of the value of the car and its associated running costs. The employer will have to pay for the car’s purchase price, any maintenance, insurance and fuel costs, plus any vehicle-related fringe benefits tax (FBT) charges. The employer will then also be liable for income tax on the amount of the Taxable Benefit received.
For example, if an employer provides a new employee with a company car that costs $30,000, the total Taxable Benefit amount for the year would be calculated by adding the purchase price and any associated running costs, such as motor vehicle tax, registration and insurance, to the employee’s gross salary, which is then subjected to income tax.
How Is The Taxable Benefit Of A Company Car Taxed?
The Taxable Benefit is generally treated as income and is subject to income tax, just as any other income. The other important consideration when calculating the Taxable Benefit of a company car is that the FBT is not always included. If the company provides the car to the employee at no cost, the FBT may not apply. However, if the company does charge for the use of the car and the employee then has to pay for the car, the FBT will be due.
When the Taxable Benefit is calculated, the employer must also consider the type of car being provided and the associated running costs. The Taxable Benefit is calculated as a percentage of the car’s value and its associated running costs, so providing an employee with a luxury car will attract a higher Taxable Benefit rate. To reduce the amount of Taxable Benefit payable, it may be beneficial for businesses to consider providing their employees with a more economical car.
How Can Businesses Maximise The Taxable Benefit Of A Company Car?
Businesses that provide company cars to employees can maximise the Taxable Benefit by ensuring the cars are fuel efficient. This reduces the associated running costs and therefore the total Taxable Benefit amount. Some businesses may also opt to buy used cars instead of new ones, as these can often be cheaper to purchase and therefore reduce the amount of Taxable Benefit they are liable for.
Businesses may also be able to reduce their Taxable Benefit by providing their employees with ‘green’ cars. Electric and hybrid cars are becoming increasingly popular and are often more economical to run than petrol and diesel cars. However, it is important to note that electric and hybrid cars are more expensive to purchase, so businesses may need to factor in this additional cost when considering the Taxable Benefit of a company car.
It’s also worth noting that businesses may be able to reduce the amount of Taxable Benefit they are liable for if they are able to ensure the car’s use is kept to a minimum. This can be done by providing the employee with access to public transport or incentivising them to carpool or use ride-sharing services.
What Are The Benefits Of Providing A Company Car?
Providing a company car to employees can have a range of benefits for both employers and employees. For employers, providing a company car can help to reduce the company’s running costs and make it easier for employees to travel to and from work. It can also help to increase employee loyalty, as employees will appreciate the convenience of having access to a car. In addition, providing a company car can help businesses to differentiate themselves from their competitors, as they can use the car as a way to promote their brand to both customers and potential employees.
For employees, providing a company car can provide a range of benefits. It can make it easier for them to commute to and from work and also provide an incentive to work harder as they will be rewarded with the use of a car. Furthermore, providing a company car can help to increase employee morale, as they will feel valued and appreciated. In addition, some employees may also be able to enjoy additional perks, such as discounted fuel costs or even free parking.
What To Consider Before Providing A Company Car?
When deciding whether to provide a company car to an employee, there are a number of factors to consider. Firstly, the employer and employee should agree on the type of car that is needed and the associated running costs. This will ensure that the car fits in with the employee’s requirements and that the running costs are kept to a minimum. The employer and employee should also consider the Taxable Benefit, so that the employee does not end up paying too much in income tax.
Employers should also consider the legal and financial implications of providing a company car. This includes ensuring that the car is properly insured and roadside assistance is provided in case of any unforeseen circumstances. Employers should also consult with a tax professional to ensure they are compliant with the relevant tax laws and to ensure they are not liable for any delinquent payments or additional taxes.
Finally, employers should ensure they are providing the right type of car for their employee. This should take into account both their needs and the Taxable Benefit, so that the employee is getting the car that best suits their needs without incurring too much expense in income tax.
What Are The Alternatives To A Company Car?
For employers who do not wish to provide a company car to their employees, there are a variety of alternative solutions. The most popular solution is to offer employees a regular petrol allowance. This provides employees with the funds necessary to purchase fuel, but does not require the employer to pay for the actual car or any associated running costs. Some businesses may also provide employees with public transport vouchers or offer discounts on ridesharing services.
Businesses may also choose to provide their employees with carpool incentives. This involves offering employees a financial incentive to carpool to and from work. This is a great way for businesses to reduce their overall transport costs, as multiple employees will be using the same car instead of multiple vehicles.
Finally, businesses may also wish to provide their employees with access to a bicycle. This will reduce the cost of transport and also make it easier for employees to maintain a healthy lifestyle. Furthermore, it is important to note that many companies will provide their employees with access to a pool of bicycles and may even offer additional benefits, such as the provision of a bike repair service.
What Are The Benefits Of Alternative Modes Of Transport?
Using an alternative mode of transport can provide businesses with a number of benefits. Firstly, it can help to reduce the company’s overall running costs, as the cost of providing petrol or public transport vouchers is significantly less than the cost of buying a company car. In addition to this, providing employees with an alternative mode of transport may also help to reduce congestion, as fewer cars will be on the roads.
Using an alternative mode of transport can also help businesses to reduce their environmental footprint. For example, by providing employees with access to bicycles or encouraging them to use public transport, businesses can help to reduce carbon emissions and consequently help to protect the planet.
Finally, using an alternative mode of transport may help to improve employee wellbeing. Cycling, walking or using public transport can provide employees with additional exercise, which can help to improve overall health and wellbeing. In addition, these forms of transport can also help to reduce stress levels, as employees will not have to worry about driving in heavy traffic.
Conclusion
Businesses should consider the Taxable Benefit of a Company Car when deciding whether to provide one to their employees. In addition to this, they should ensure they are aware of how the cost is calculated, how to maximise the Taxable Benefit and the potential alternatives. Providing a company car can provide a range of benefits for both employers and employees, but businesses should ensure they are aware of the potential costs and legal obligations before making any decisions.
