Company cars: everything you need to know
Whether you've already had several company cars, or are looking to get your first one, we answer all the questions you might have, including what a company car is, and how you can minimise your company car tax bill.
Historically, company cars tended to be bought in bulk and the keys just handed to an employee, but many are now what’s known as ‘user-choosers’. The user can choose from a list, limited by their employer.
The other type of company cars are those still bought in bulk and known as ‘job-need’, where the vehicle is an essential part of the employee’s role. These cars tend to be more utilitarian, such as medium-sized estates, and though the worker is still taxed the same way, based on the car’s CO2 emissions and price, they will likely have less free choice about what they drive as the company generally buys a number of the same vehicle.
One important thing to remember with the P11D value of the car, is that it includes any optional extras. If the driver picks larger alloy wheels, for example, there’s a decent chance that will also increase the CO2 emissions figure, which can mean a double-whammy of cost if it takes the car into a higher BIK band.
The government’s Ultra Low Emission Vehicle grant, which knocks money off the cost of buying an electric car, but has recently been severely limited, doesn’t factor into the P11D cost, so drivers are taxed on the pre-grant price.
But even before that, cars emitting 50g/km or less – which only covers plug-in hybrid and full electric vehicles – pay significantly less tax than even the most efficient diesel equivalent.
To try to discourage drivers from diesels, there’s a four-band BIK penalty on diesel vehicles not meeting the RDE2 emissions standard. And no cars will be available until late 2019 (at the earliest), that meet that standard.
Some fleets will buy outright, which then means the management of any problem is dealt with in-house, rather than having the phone number of a leasing company to point the company driver at when anything happens with the car.
The other way cars are financed is on a cash allowance. Companies that aren’t worried about keeping a tight control over what their drivers are in, and don’t want the hassle of running a fleet themselves, will give eligible drivers a lump sum every month to do with what they like. Sometimes there will be parameters around age and type of car, and sometimes there’s a free choice, so employees can choose to drive something older and pocket the cash.
Hybrid and plug-in hybrid models, for simplicity’s sake, fall into the category based on the size of their petrol engine and ignoring any battery input. See the gov.uk website for the latest rates.
The only other thing to note is that anyone using their own car for non-commuting work business – including those cash-for-car drivers – claims using a different set-up called Approved Mileage Allowance Payments (AMAP). These are higher because drivers using their own car have to pay for business insurance, as well as the wear and tear, and the loss in value of the car caused by the extra miles. Therefore, the AMAP rates are 45p per mile for the first 10,000 miles of a tax year, and 25p per mile after that. There’s also a rate for motorbikes and bicycles of 24p and 20p respectively, regardless of mileage.
Free fuel is the company paying for private journeys, including commuting. But if an employer pays for private fuel, the tax penalties are high, with the government deeming it to be a benefit worth £23,400 in 2018/19, a figure that rises each tax year. That means a driver has to multiply £23,400 by their car’s Benefit-in-Kind band – the same as they would to work out their company car tax, to get to their monthly tax bill for their free fuel. It can still make sense for high-mileage commuters, but only those getting through at least two tanks of fuel per week.
Even if unlimited private use of a light commercial vehicle is allowed by a company, HMRC sees it as a much lower benefit than a company car, valuing it at £3,350 for the 2018/19 tax year. That means a 20% tax payer would be hit by an annual £670 bill, or £56 a month – much less than a company car.
As pick-ups capable of carrying a one-tonne payload count as commercial vehicles, there is a small company car population taking advantage of this, and selecting a £30,000 pick-up truck that costs less in tax than a Ford Focus.
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