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Company cars and company vans

Company car taxation

From a taxation viewpoint, it is usually the case that it is not beneficial to have a company car. This is due to the high levels of taxation charged on the benefit in kind to the employee. In addition the employer has to pay employer’s national insurance contributions on the benefit in kind.

Company car benefits in kind are calculated as a percentage of the official list price of the car.  The value of the benefit is then taxed through the PAYE system.

One of the few situations where it can be beneficial to have a company car, is where a company provides very low emission cars (those having CO2 emission ratings of 50 or less) to employees.

The tax relief available to an employer on the purchase of company cars is also relatively poor when compared to the tax relief on other fixed assets purchased.

Company van taxation

The tax regime for company vans is such that it is generally beneficial, from a tax viewpoint, to have a company van, rather than to buy one privately.

Irrespective of the cost or type of van involved, the benefit in kind is the same.  Where fuel is provided, the total benefit in kind is less than £4,500. For a basic rate tax payer, the tax on a £4,500 benefit would be £900 per year.

In situations where the private use of a company van is insignificant (under the HM Revenue and Customs definition), no benefit in kind arises and hence the employee has use of the van free of tax.

Alternative tax relief for business motoring

Rather than have a company car or van, an employee can make mileage expense claims against their employer. Mileage can be claimed at the rate of 45p for the first 10,000 business miles and 25p per mile for additional mileage. The employer obtains tax relief for the mileage claimed and the employee receives the mileage expense free of tax.

Business vehicle costs for self employed

Self­-employed individuals are able to claim tax relief on a proportion of their car or van expenditure against their business profits. The proportion claimed needs to reflect the business element of the total car / van expenditure incurred.

Action plan

For further assistance in this matter, or any other issues relating to owner managed businesses, please phone Shacklefords Chartered Accountants on 0121 448 7466 or e mail info@shacklefords.co.uk

Call us on 0121 448 7466 for a free meeting