The cost of being provided with a company car has reached extremely high levels and whether to make use of a company car for private purposes now requires careful consideration to minimize the tax on company cars.
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Ways to Reduce Tax on Company Cars
Consider the following strategies to minimize tax costs associated with company cars:
1. Vehicle Specifications
The tax charge for a company car is determined by factors such as the list price, CO2 emissions, and fuel type. Opt for vehicles with lower list prices and CO2 emissions to reduce tax charges. Keep in mind that diesel cars may have higher premiums.
Additionally, cars that do not produce any CO2 emissions are not subject to tax charges.
2. Classic Cars
Older vehicles (15 years or more) valued at £15,000 or more are taxed based on market value instead of list price. For cars valued below £15,000, the list price is used, which could result in lower tax charges.
3. Pool Cars
Company cars that are not regularly kept at an individual’s residence, used by multiple employees, and have private use incidental to business use can be classified as pool cars. In such cases, the car may not be considered a taxable benefit.
4. Sole Traders or Partnerships
Running a car through an unincorporated business for the business owner eliminates the benefit in kind. While tax-deductible expenses are limited by the private use proportion, this approach is generally more advantageous than owning a company car.
Some businesses may separate their operations into two entities, with cars held under the unincorporated side.
5. Cash Contributions
Employees can reduce the list price used for calculating the car benefit by making capital contributions, up to a maximum of £5,000. Companies can also provide interest-free loans to employees for this purpose without incurring a benefit in kind on the loan.
6. Company Vans
The cost of a company van is £3,000, with no reduction for older vans, plus an additional £757 of taxable benefit if fuel is provided by the employer for private travel. Vans are generally designed to carry goods with a weight of up to 3500 kg, and a double cab pick-up is considered a van if it can carry a payload of at least 1 ton.
It is important to note that a charge for private fuel applies even with minimal private petrol usage, so it may be beneficial to avoid this or consider repaying the private fuel provided to avoid the charge
7. Private Fuel
A fee for personal fuel is applicable even if only a small amount of personal gasoline is utilized, so it is advisable to either avoid this altogether or consider reimbursing the personal fuel used to avoid the fee.
8. Commuting
Please note that commuting is generally considered personal travel, not business travel.
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9. Tax-Free Mileage Allowance
If you own the vehicle and use it for business purposes, you can invoice the business for business-related trips and receive the payments tax-free. The current tax-free rate is 45p per mile for the first 10,000 miles and 25p thereafter, which can often be more beneficial than having a company car. The company is also eligible to reclaim VAT on the fuel portion of this reimbursement.
How We Can Assist You
We are available to provide tax planning guidance regarding your company car. Please reach out to us for further assistance.
Disclaimer: The information about Minimising Tax on Company cars provided in this article including text and graphics. It does not intend to disregard any of the professional advice.
