For a number of years, the concept of a tax efficient company car has been diminishing with annual increases to the benefit tin kind (BIK) charge. However, the tide appears to be turning and the government has recognised that tax incentives for environmentally friendly cars are a good thing!
Unfortunately, this change will not take place until April 2020 and for 2019/20 tax charges on the individual will be higher than ever. Even the most efficient cars will be subject to a minimum BIK charge of 16% of the car’s list price.
WHAT ARE THE TAX IMPLICATIONS?
The best option from a tax perspective will be electric cars or hybrid cars that have a good electric range. For cars with CO2 emissions of between 0g/km – 50 g/km, 100% first year capital allowances will be available for the company and the BIK charge on the individual will drop to as low as 2% from April 2020 where the car has an electric range of 130 miles or more.
For cars with CO2 emissions of over 110g/km, the tax charges become significantly higher with annual capital allowances of just 6% for the company and a BIK charge of at least 27%, increasing up to a maximum of 37%. For example, a higher rate taxpayer having a company car with a list price of £30,000 and high CO2 emissions could face a tax bill in excess of £4,000 per annum.
In some cases, the company may not be able to claim capital allowances for the car, for example, when it is taken out on an operating lease; however, the cost of the lease payments should instead be deductible.
If the company also reimburses fuel costs, and the company car is used for private journeys (including the ordinary commute from home to work), a further tax charge will arise on the employee. Unless the employee is undertaking a significant amount of private miles, it could cost the employee more in tax than the provision of fuel itself. A BIK can be avoided, however, where the fuel cost for all private mileage is reimbursed by the employee.
Another point to note is for company cars taken as part of a salary sacrifice scheme. If the CO2 emissions of the car are in excess of 75g/km and the arrangement has been entered into after 6 April 2017, the individual is now taxed on the higher of the BIK charge and the salary foregone (or cash alternative).
A final consideration could be to instead look at a company van as they tend to be much more tax efficient Care needs to be taken to ensure that they are treated as vans for tax purposes, however, as a recent case found that some VW Kombi Transporters should be treated as a car. Double cab pick-ups are a popular choice and separate guidance issued by HMRC supports that these vehicles will be treated as vans for BIK purposes provided that they have a payload of one tonne or more.
The decision to buy a new company car may be best delayed by a year until the lower BIK rates come in. If it is not possible to wait that long it will still be worthwhile bearing in mind the rates from 2020, when deciding which make/model to opt for.
For directors, the decision of whether to own a car personally or via a company could hinge upon whether they are looking to purchase an energy efficient electric vehicle or gas guzzling diesel car. We can help by carrying out a comparison of the tax implications of company versus personal ownership.