The Wheel Deal: Navigating the Twists and Turns of Company Car Tax

Fasten your seatbelts and adjust your mirrors, because we’re about to take you on a wild ride through the labyrinth of UK company car tax legislation! Whether you’re eyeing that shiny Porsche or considering a more practical approach, we’ve got the roadmap to help you navigate these treacherous financial highways.

The Company Car Conundrum: A Comedy in Four Acts

Act 1: The Personal Use Paradox

Picture this: Your company buys you a car. You swear on a stack of MOT certificates that it’s “just for business.” But HMRC isn’t buying your Oscar-worthy performance. They know you’ll be using it personally, even if it’s just to pop to the shops for a Freddo. The degree of personal use is as irrelevant as last year’s road tax payment – it’s happening, and that’s that.

Act 2: The Pool Car Pipe Dream

“Aha!” you think, “I’ll just call it a pool car!” Nice try, but unless you’re planning to park it at the office every night (and we know you’re not), that’s about as likely as finding a unicorn in your garage. A pool car needs to be available to all employees, used only for business, and not kept at anyone’s home overnight. So unless you’re running a 24/7 taxi service for your employees, that’s probably not going to fly.

Act 3: The “No Personal Use” Comedy Sketch

You could create a company policy prohibiting personal use, but let’s be real – that’s about as effective as a chocolate teapot. Plus, if you actually followed it, you’d need to insure the car to exclude personal use. Imagine explaining to the police why you’re not insured for your weekend trip to Tesco!

Act 4: The Tax Man Cometh

Now, let’s break down the tax implications of your vehicular dreams:

  1. The £20K “Bargain” Porsche Cayman
    • Corporation Tax: 6% writing down allowance per year. It’s like watching paint dry, but less exciting.
    • Personal Tax: Based on the original list price (£50,000) and CO2 emissions. For a gas-guzzler, you could be looking at a benefit value of 37% of £50,000 = £18,500. If you’re a higher rate taxpayer, that’s £7,400 in extra tax per year. Ouch!
    • Class 1A NI: The company pays 13.8% on the benefit value. Another £2,553 per year.
    • VAT: If the company is VAT registered, it can’t reclaim the VAT on the purchase. It’s like buying a round for HMRC.
  2. The Brand New £60K Porsche
    • Same rules apply, but bigger numbers. Benefit in kind could be 37% of £60,000 = £22,200. That’s £8,880 in personal tax for a higher rate taxpayer, and £3,063.60 in Class 1A NI for the company. The tax man is the only one getting a joyride here!
  3. Buying Outright vs Finance
    • Tax treatment is largely the same. The benefit in kind is still based on the list price. With finance, the company might get tax relief on interest payments. It’s like finding a fiver in your pocket, but the taxman takes four quid.
  4. Leasing
    • Lease payments are generally deductible expenses for the company (with some restrictions for high-emission cars).
    • You still get hit with the benefit in kind charge based on the car’s list price.
    • Silver lining: The company can reclaim 50% of the VAT on lease payments. It’s not quite winning the lottery, but we’ll take what we can get!
  5. The Electric Avenue
    • 100% first-year allowance on the full cost of the car for the company. Now we’re talking!
    • Benefit in kind rate is just 2% of the list price for 2024/25. On a £60,000 electric car, that’s £480 in tax per year for a higher rate taxpayer. It’s like finding a loophole in the Matrix!
    • The company pays just £165.60 per year in Class 1A NI.
    • VAT: Still can’t reclaim it on a car available for private use, unless it’s leased (then 50% is reclaimable).
  6. The Van Plan
    • 100% Annual Investment Allowance available for the company.
    • If there’s insignificant private use, there’s no benefit in kind. If there is private use, it’s a flat rate benefit of £3,960 for 2024/25.
    • VAT is fully reclaimable if it’s a genuine commercial vehicle with only insignificant private use.

The Fuel on the Fire: Company-Provided Fuel

Think the company paying for your fuel is the cherry on top? Think again!

  1. For Cars: There’s an additional benefit in kind. For our £60K Porsche with a 37% CO2 percentage, that’s a fuel benefit of £10,286. A higher-rate taxpayer would pay £4,114.40 in tax on this. The company also pays Class 1A NI of £1,419.47. It’s like paying for an all-you-can-eat buffet when you’re on a diet!
  2. For Electric Cars: Good news! Electricity isn’t considered “fuel” for this purpose. So if the company pays to charge your electric car, including at home, there’s no fuel benefit. It’s the tax equivalent of having your cake and eating it too!
  3. For Vans: There’s a flat rate fuel benefit of £757 for 2024/25. It’s like a fixed-price menu for your fuel benefit!

Remember, these fuel benefits apply on an “all or nothing” basis. Even if the company pays for one private mile, you’re hit with the full whack. It’s the tax equivalent of “you break it, you bought it”!

The DIY Approach: Your Car, Company’s Mileage

Not keen on the company car circus? Here’s another route:

  1. How It Works: You buy the car, the company reimburses you for business miles. It’s like Uber, but you’re both the driver and the passenger!
  2. The Rates: HMRC’s Approved Mileage Allowance Payments (AMAPs) for 2024/25 are:
    • First 10,000 miles: 45p per mile
    • Over 10,000 miles: 25p per mile For a 20,000 mile year, that’s £6,500 tax-free. Not too shabby!
  3. Tax Implications:
    • For You: If the company pays you at or below these rates, it’s tax-free. It’s like finding money in your pocket, but HMRC put it there!
    • For the Company: The mileage payments are a deductible expense.
  4. Record Keeping: You’ll need to keep a log of your business miles. Think of it as a fitness tracker, but for your car.

The Plot Twist: Company Car, Personal Fuel

Want a company car but don’t fancy the fuel benefit? You can have your cake and eat it (sort of):

  1. The Setup: You get a company car, but pay for all fuel personally.
  2. The Payoff: You can claim the advisory fuel rates for business mileage, and the company can reclaim the VAT on these rates.
  3. The Catch: The amounts aren’t very exciting. It’s like getting a participation trophy in the tax Olympics.

But What About VAT?

Ah, VAT. The uninvited guest at every financial party The plot twist in our financial soap opera. Here’s the real scoop:

  1. Can You Reclaim VAT?: Hold onto your steering wheels, because yes, you can reclaim some VAT! But like a GPS on a country lane, it’s a bit complicated.
  2. The Fuel Element: HMRC, in its benevolence, allows companies to reclaim VAT on the fuel element of mileage claims. It’s like finding a secret compartment in your car that dispenses tax refunds!
  3. How It Works:
    • HMRC publishes advisory fuel rates, which represent the fuel element of your journey.
    • These rates vary based on engine size and fuel type, and are updated quarterly. It’s like a ever-changing menu of tax savings!
    • You can reclaim the VAT fraction of these fuel rates.
  4. The Math: Let’s say the advisory fuel rate for your gas-guzzling beast is 17p per mile. The VAT element would be 17p x 1/6 = 2.83p per mile. For a 10,000 mile year, that’s £283 of VAT you can reclaim. Not exactly winning the lottery, but hey, every little helps!
  5. The Catch: The company can only reclaim this VAT if it’s VAT registered, and the journey was for business purposes. No sneaking in your weekend trips to the beach!

The Grand Finale: Selling the Company Car

Here’s the encore you didn’t ask for: When the company sells a vehicle it claimed 100% tax allowances on, it’ll have to repay the tax on the sales price to HMRC. It’s like the taxman’s version of a goodbye kiss!

The Bottom Line

Whether you go for a company car, buy your own, or decide to commute by unicycle, each option has its tax twists and turns. The key is finding the route that doesn’t drive your finances off a cliff.

Remember, in the world of company cars, what looks like a shortcut often turns out to be the scenic route to HMRC’s doorstep. Drive safely and may your tax bill ever be in your favour!

P.S. If all this has left your head spinning faster than a Porsche’s wheels, don’t worry – that’s what we’re here for. Just give us a call, and we’ll help you navigate these treacherous tax waters, but hopefully from the above you will understand that it helps you have a clear idea of the boat you want to sail in.   Hmmm there’s an idea for another article – The company boat………………

https://www.tax.service.gov.uk/guidance/work-out-company-car-and-fuel-benefit