Many of us are faced with the task of driving as part of our job. Whether you chose to opt for a company car, or you decide to use your own vehicle, there are pros and cons to both and it is important that you have weighed up all the facts before you decide which route to follow.
A company car is a vehicle provided by an organisation for both the business use and private use of an employee. They are usually offered to employees who need to drive as part of their job, but it can also be awarded as a benefit as part of your remuneration package.
At first glance, a company car seems like a great benefit to have. You don’t have to invest in the purchase of a car, you are not reliable for the insurance or maintenance of it and for most, your fuel is paid for as well. On paper, it sounds like a great option. But with the company car comes a BIK tax rate, or ‘Benefit in Kind’ tax that means you will pay for the use of your company car and this is something that you have no control over.
The amount of company car tax you pay also depends on your personal income tax bracket. If you fall into the 20% tax bracket, you’ll pay 20% of the taxable portion of the car’s P11D value and if you fall into the 40% tax bracket, you’ll pay 40% on the taxable portion of the P11D value. This amount is usually deducted from your monthly pay. Before you decide which route of car use you want to go down, maybe want to take a look at the HMRC Car Tax calculator.
If a hypothetical petrol BMW 3 Series has a P11D value of £30,000 and emissions of 110g/km of CO2, it is in the BIK liability band of 25% based on its CO2 emissions. Therefore, the rateable figure is £7,500 – 25% of £30,000.
If you live in England or Wales the amount of company car tax you’ll pay HMRC is your tax bracket percentage of £7,500, so 20% tax bracket =£1,500, 40% tax bracket = £3,000 45% tax bracket = £3,375 a year.
And this is without the added benefit of fully expensed fuel. If you aren’t paying back your private mileage, then you could be facing a hefty addition to your tax bill.
It is worth noting that all-electric cars registered before 6 April 2020 are given a tax break completely for 2020/21, paying no company-car tax at all. Rates then increase by 1% per year from the 2021/22 tax year.
The costs associated with using your own vehicle for company business may seem fairly obvious, but to err on the side of caution, we have listed them out for you:
There are some huge downsides to not having a company car and supplying your own vehicle for company use. Firstly, you have to find the money upfront to purchase your car or take out a loan or finance which carries additional costs. You are then responsible for the running of that car and don’t forget that you need to upgrade your insurance to cover you for business use which can have an impact on your yearly premium. It is not all doom and gloom though and here are some things we feel you need to factor in before making a decision:
The number of people paying company car tax is falling substantially year on year. According to HMRC data, there were 870,000 company car drivers in 2018-19 (a fall of 30,000 on the previous year). Whether this is because of tax implications, more people working flexibly or a nod towards climate change is not really known. With the UK having learnt how to work remotely in 2020, there will undoubtedly be less demand for the need to drive for work. But, whichever option you chose when it comes to a vehicle for business use, the Government are making it clear that switching to EVs is the route they want you to take, and soon.