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All You Need to Know About Company Car Tax

Company cars have long been one of the UK’s most popular employee benefits. But over the last decade and a half, this simple perk has come under new tax rules. In addition to this, rates of tax on company cars change yearly. Nowadays, company car tax bands will be decided by the vehicle’s ‘benefit in kind’ value. But there are certain factors that affect a company cars ‘BiK’ value, and tax rate, more than others.

Factors that Affect a Company Car Tax Band

When confronting business tax, it pays to know how BiK values are affected. A significant part of a vehicle’s BiK value is the manufacturer’s list price for the vehicle. This list price will incorporate the vehicle and its standard accessories, including delivery, VAT and even after market modifications. Modifications with a value over £100 made during a tax year in progress, will affect the list price for the entire year.

After the list price, CO2 emissions prove to be the most dramatic factor in deciding the tax on a company car. A company car’s tax rate can be estimated by multiplying its list price by a BiK percentage. This BiK percentage will be higher or lower according to a vehicle’s CO2 emissions per kilometre. These percentages update yearly. Diesel cars will have higher BiK percentages, whilst electric vehicles will have the lowest percentages. In other words, this is just one of the government’s ways of encouraging the use of ultra-low and zero emissions vehicles. However, in recent years the BiK percentages for even low-emission vehicles have been rising. Therefore, tax can be expected to be paid on no-emission vehicles in the coming years. For this reason, the once overwhelming benefits of a low emission company car are diminishing slightly.

What Company Car Tax Rules Mean for Businesses

With BiK percentages changing year on year, what was once a simple job perk is now a lucrative source of government tax revenue. For this reason, it’s good to consider other options before offering private use of company cars. For smaller companies, offering company cars may not be economically efficient. Fuel allowances might prove a more controllable expense and perk of the job. For those sticking to the company car perk, it’s good to keep four major factors in mind. The value of the car, and its CO2 per kilometre emissions, alongside the driver’s personal tax rate and personal, financial contribution to the car. Seeking help from an accountant can help you find the right solution for your company finances.

With company car tax rates changing year on year, the aid of a registered, chartered accountant can help clear the fog. SRG have over a century of expertise to bring to client requests. Contact our Glasgow or London offices at your convenience for any insight you require.

SRG LLP is a UK limited liability partnership registered in England and Wales under number OC320275 | Registered office: 10 Bolt Court, London, England, EC4A 3DA

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