Are Company Cars Good or Bad?

Car and fuel benefit have become a more attractive option over recent years, mainly due to the promotion of electric and hybrid vehicles which has changed the picture considerably.

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 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, 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!

The benefit in kind figure or cash equivalent is calculated by using the appropriate percentage, depending on the CO2 emissions figure and the original manufacturer’s list price of the vehicle. For diesel cars not meeting the RDE2 standard there is an additional supplement of 4% to add on to the appropriate percentage figure up to a maximum of 37%. The table below shows the current figures:

A 4% surcharge applies to diesel vehicles not meeting the RDE2 standard. If you have a company van, different rates apply.

Are company directors better off having a company car?

Historically it was generally more advantageous for directors to run their cars privately and charge back business mileage. It is usually still better to do this for petrol and diesel cars, but if fully electric the company car option is often more tax efficient and this can also be the case for hybrids.

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! For more information on how we can help you and your business with this 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 (11/01/24). 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.