Company Car - Personal Tax implications, what you need to know.
There are three areas that need to be considered when thinking about what to do.
Personal tax consequences
Company tax consequences
Company leases a car - You are right that you can reclaim 50% of the VAT back on the monthly lease payments. You can also claim 100% VAT back on any repairs made to the car, and any service plans that are invoiced separately to the lease agreement.Company purchases a car outright – The company will be blocked for any VAT recovery at all, as you will have the car available to you for personal use too.Fuel – VAT recovery on fuel costs are the same whether the car is purchased outright or leased. How the VAT is recovered depends on whether the company or the individual (yourself) pays for the fuel throughout the year.
You will incur a P11D benefit in kind (BIK) if you have access to the company car. The benefit will be calculated in the same way regardless of whether the car is leased or purchased outright. The amount of the benefit will be dependent on the initial list price of the car (the cost of it new, regardless of how old it actually is), multiplied by the car emissions percentage. The emissions percentages are on the table attached. Therefore the BIK can vary greatly depending on which car you purchase. As an example, if you were to purchase a new Golf for £20k, which had CO2 emissions of 110 g/km, the 2019-20 benefit in kind value would be £20,000 x 26% = £5,200. You would be taxed on this as if you were receiving cash of the equivalent value. This means you will pay tax and NI on it, and the company will also pay employer NI, all at the normal rates.The lower the car emissions, the lower the BIK will be.If the company also paid for your fuel costs, you would be deemed to receive another BIK. This is calculated at a set rate of £24,100 x CO2 emission percentage. So, using the above CO2 rate, your BIK would be £24,100 x 26% = £6,266. The £24,100 figure is one that is set by HMRC, and increases slightly each year. It has nothing to do with the cost of the car or it’s emissions. Again, the lower the car’s emissions, the lower the BIK.If you pay for the fuel personally, as opposed to the company paying, you can be reimbursed at a rate of between 8p – 14p per mile, with the exact amount being dependant on which car you have. You will not incur a BIK, or be taxed on this reimbursement.
If the company purchases the car outright, it will receive a capital allowance tax deduction of 18% of its written down value each year. That is unless a brand new hybrid/electric car is purchased with emissions under 50g/km, in which case the full cost of the car will be tax deductible in the year of purchase.If the company leases the car, the tax deduction depends on the lease terms. If it is considered a finance lease, whereby the company owns the car at the end of the ease term, the tax deductions are as above – capital allowances of 18% of its written down value each year. The lease payments are not tax deductible. If it is considered an operating lease – where the company doesn’t own the car at the end of the lease term – then the monthly lease costs are tax deductible, but no capital allowances are received.
There are various other intricacies to the above, but they are circumstance and car specific.
In all honesty, especially as a higher rate tax payer, the personal tax consequences of the company purchasing a car for your use, are such that it is often not a beneficial option, regardless of whether the company purchases or leases the car. That is unless you purchase an electric or hybrid car with emissions under 50g/km, in which case the benefit in kind is small, and the company tax deductions are very generous.
If you have a car in mind, we can do all of the calculations for you, taking into account your personal tax circumstances and the company costs and benefits to see if it a beneficial option for you.