What Are The Rules On Having A Company Car In The UK?

Well Dunn Insurance Blog , Company Car , UK Company Car , Company Car Insurance

In the earlier days, a company car was perceived as a lucrative incentive when it came to considering a new job. However off late, companies have resorted to provide car allowances which work out to be financially more beneficial for both the employer and the employee. However, there are certain perks of choosing to keep a company car.

The practice of allowing employees drive and use company owned vehicles have been maintained in the UK for long. The majority of the driving costs and repairs are generally born by the company and certain companies can even offer the benefit of private fuel. Besides, the employee does not have to take the burden to pay off a vehicle loan. Moreover, the depreciating value of the car is no longer a worry for him. Most of the company car owners generally have car leasing agreements for about 2-3 years which allows them to return the vehicle to the leasing company once the contractual period is over. This also means that the employer themselves do not have to worry about the wear and tear of the ageing vehicle once the agreement period is over. The biggest disadvantage of employers is the amount of tax which is being levied, based on the type of vehicle used.

Tax on Company Cars

A company car is available for business journeys only. Taxes have increased as the government in the UK has resorted to discourage ownership of a company car. Taxes will be levied if you or your family use a company car privately which includes commuting. Before April 2002, the owners of company cars paid taxes based on the number of business miles they drove. As of today, the tax will be calculated on the value of the company car to an individual, which would depend on certain aspects such as the type of fuel it runs on and how much it would cost to buy the vehicle. The value of the tax will be steadily decreased if one uses the company car on a part time basis, one pays a certain amount towards it’s cost and when it has low carbon dioxide emissions. One has to pay tax separately if the employer pays for fuel which is utilized for personal journeys.

How to avoid Taxes on Company Cars

There is no requirement for a consumer to pay or report anything to HM Revenue and Customs (HMRC), if the car is used in one of the following ways.

  • If the cars are exclusively available for business journeys
  • If the cars are being used by an employee with disability to travel to and fro from work and work related training.
  • If the cars or fuel for employees who earn less than GBP 8500 in a financial year
  • If the cars are pool cars

Consumers can hugely benefit from taxes, if the vehicle is environment friendly such as electric cars and hybrid vehicles which feature in the lower tax brackets and the most environment friendly vehicle ends up paying absolutely no charges at all together with exemption from congestion charges.

Difference between a Company Car and a Pool Car

A company car is often considered as a lavish incentive of employment in the terms of tax wherein a pool car is a vehicle which is made available to employees. A pool car is never made available for the private use of the employees.

Benefits of a Company Car

If the consumers are solo representatives of their company, it is better that they own the vehicle privately. In this case, the company can be charged tax free mileage of 40p for every mile for the first 10000 business miles and 25p for every business mile thereafter. If the consumers are the director and the complete shareholder of their own enterprise, they are financing the company car themselves and in such cases they are suffering the employee benefit and also the Class IA Employer National Insurance charges.

The few exceptions of the above rule and the various benefits of a company car include,

  • If the car is depreciating, it might pay to own it for six months, after which the director of the company can purchase the vehicle for it’s reduced market price. Although the company would have to bear the loss incurred due to the ownership, it might work out to be greater than the taxes being levied.
  • If the maintenance and service of the company car is greater than the national insurance and tax charges.
  • If HMRC defines the vehicle as a ‘classic car’, then special rules will be applicable to make the ownership of company car attractive, especially if the cost of maintenance is high.

The Future of Company Cars

With the advent of the year 2017, road taxes will take a new shape with a few exceptional changes being announced with the Summer Budget in the UK. The tax rates on company cars have considerably tightened almost each year for the past 13 years. Effective next year, no diesel or petrol car will escape the Vehicle Excise Duty which will be about GBP 140 every year and only vehicles with zero emission will be exempted from paying taxes. High-end vehicles, irrespective of their carbon dioxide emissions, will accrue an additional amount of GBP 310 each year, for the first five years. This could result in enterprises looking to replace their senior and middle management employees on less expensive vehicles in order to avoid the additional charges. Vehicles such as Premier models of Lexus GS 300h, F Sport and other hybrid vehicles in the various line ups of premium vehicle manufacturers will become costlier for fleets to operate. This also means that even the latest generation of hydrogen fuel cars, inspite of emitting only water vapour and not emitting any carbon dioxide , will be subjected to levying of taxes because of their worth of GBP 40,000. Electric vehicles with expensive batteries such as Teslas, will be costly cars to operate for fleets.

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