The trend over recent years has been for car and fuel benefit to become less popular.
This has been mainly due to several years of substantial increases in the taxable value of these benefits. However, provisions introduced to promote electric and hybrid vehicles have changed the picture considerably in the last year or so. More than ever before, the choice of a company vehicle is critical as to whether it will be “good” or “bad” from a tax viewpoint.
The “good” ones
There is now very low benefit in kind charges on electric vehicles and hybrid vehicles that have a higher zero-emissions range. This means that providing a company car of these types (and even private fuel if applicable) can now be a very tax-efficient part of an employee/director remuneration package.
The “bad” ones
Company cars with high CO2 emissions are expensive for tax, especially those that also have a high list price. Fuel benefit for these vehicles, and even for relatively less expensive cars and those with mid-range CO2 emissions can also cost a lot in tax, especially for any employee/director whose private mileage is not large. The tax on fuel benefit can in some cases cost more than the value of the fuel provided!
Can company directors be better off having a company car?
Until 5 April 2020, there were relatively few options for tax-efficient company cars and it was often better for directors to run their cars privately and charge business mileage to their company. It is generally still better to do this unless the car is in the “good” category above. However, for any director thinking of changing their car, it could well be more tax efficient to run the new one as a company vehicle if an electric or hybrid model is an acceptable option.
As always, especially in this complex area, we recommend that you speak to your accountant ahead of making any changes to company vehicles and any other taxable benefits. Selecting a company car without getting advice on the tax consequences can be costly for years to come!
If you need any further help or advice on tax efficient company car options, why not contact us for a chat and one of our consultants will be happy to answer any questions you have.
Please note: This report is provided for information only and was correct as at time of writing (15/06/21). Lists and details provided above are not exhaustive and not intended to be full and complete tax guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.