When it comes to company cars, we often are asked ‘Can my limited company pay for my car’? The answer is usually yes, BUT… it is not always tax efficient. We look at when this applies, and how having a company EV (electric vehicle) changes the whole equation.
Cars and benefits in kind
Whilst your limited company will pay for the cost of buying and running the car, you (as the person with access to the car) end up paying too.
- You will be personally taxed on having the vehicle available to you each year as a ‘benefit in kind’. This ‘benefit in kind’ is valued as if the car were new, just driven off the forecourt.
- If the company fuels the car, you also get charged a substantial fixed ‘benefit in kind’ each tax year. This is regardless of how much fuel actually goes in the vehicle.
You pay personal tax on these amounts (so likely between 20 – 45%!) AND the company also pays tax on this value (at the time of writing 13.8%). That’s potentially a LOT of tax. Exactly how much tax depends on the vehicle’s C02 emissions, the list price value, and a percentage rate HMRC set each tax year.
Company car or mileage?
Historically, we have tended to steer clients away from doing company cars and instead to claim a mileage allowance. You claim these at HMRC approved rates direct from your ltd company when using your own private car for business journeys. Sadly, in ‘today’s money’, the rates are not that exciting.
The exceptions are very low emission cars and/or electric powered vehicles. The current rules mean that, depending on the emissions from your car, the ‘benefit in kind’ rates can be super low. In addition to this, electric does not count as true ‘fuel’ as far as tax in concerned, further reducing your benefit. (Read more about this in our brief guide on electric cars).
I’ve heard it’s ok to have a ‘pool car’?
This one is fraught with challenges. You can read more in our blog on the subject here.
What about a company Van?
This situation changes if you have a ‘Van’. There is a much lower fixed rate ‘benefit in kind’ on having access to a company van.
However, it’s best to check that your vehicle counts as a van for tax purposes. The tax law definition can actually vary from what you may call a van and what HMRC calls a van (as Coca-Cola found out in one of the leading tax court cases!). HMRC have recently changed their approach, meaning that many crew/double cab pickups are no longer taxed as Vans.
If you do have a van, it can often work out to be pretty tax efficient for a company to run.
Company cars and your accountant
If you are thinking of changing your car and looking for tax efficiency, do consider EVs, and always chat to your accountant. Also, please note that this article is on limited company provided cars. The rules are different for other types of businesses.
If you don’t have an accountant, or feel you aren’t making the most of the opportunities of company cars with your current accountant, we can help.