Are Company Cars - good or bad?

Car and fuel benefit have become a less attractive option over recent years, mainly due to increases in the taxable value. However, the promotion of electric and hybrid vehicles has changed the picture considerably in the last year or so.

This change is mainly due to the decrease in the taxable value of these benefits that was implemented in 2020. More than ever before, the choice of a company vehicle is critical as to whether it will be “good” or “bad” from a tax perspective. 

The “good” ones

There are now very low benefit in kind charges on electric vehicles and hybrid vehicles that have 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, and may not be worthwhile 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!

Are company directors better off having a company car?

Until 5 April 2020, there were relatively few options for tax-efficient company cars, and historically it has been more advantageous for directors to run their cars privately and charge back business mileage. 

As a rule of thumb, it is generally still better to do this - unless the car is in the “good” category above, in which case, for any director thinking of changing their car, it could 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 could adversely affect you for years to come!

To find out how we can help you and your business please contact us at info@oldfieldadvisory.com or call 02476673160

Please note: This article is provided for information only and was correct as at time of writing (08/02/22). Any lists and details provided above are not exhaustive and are not intended to be full and complete 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.