Company Cars

Company cars

A company car is usually offered to employees who might travel a lot for work purposes, however, the vehicle can also be for personal use.

There are many reasons why this arrangement can be beneficial to both employers and employees:

Employers

• Providing a workplace perk such as this can be useful for both attracting and retaining employees.
• Firms can claim capital allowances and expenses on the costs of a car when used for business purposes.
• If offered as a salary sacrifice, there’s the opportunity to save on National Insurance costs.

Employees

• Their employer will usually cover certain costs of the car, such as insurance, servicing and maintenance.
• They can have a newer model of car that they might not otherwise be able to afford themselves.
• They’re not personally financially tied to the vehicle.

Tax on company cars

While a sought-after work benefit for many people, a company car is not a tax free perk.

An employee needs to pay tax on certain company benefits, such as cars, accommodation and loans, and the employer will take the owed tax from the employee’s salary via PAYE.

As the employer, you will also have certain obligations you’ll need to adhere to, such as reporting the vehicles to HMRC (if part of a salary sacrifice arrangement) and potentially paying National Insurance on the value of the cars and fuel.

You’ll need to report any company cars and fuel used for private journeys through a P11D form and pay Class 1A National Insurance on the value of the car/fuel benefit.

As with all employee expenses and benefits, you must keep a record of everything; you’ll need the car’s list price to calculate the value of the benefit, which you can easily work out either using payroll software or online tools available via the HMRC website.

If the cost of the cars and fuel ends up being less than the amount of salary given up for a salary sacrifice arrangement, then you will need to report the salary amount instead.

Hybrid vehicles

It’s worth noting that the value of the car is reduced if it has low CO2 emissions, making a hybrid vehicle a good choice.

If the company car has CO2 emissions of 1 to 50g/KM, then the value of the car is based on its zero-emission mileage figure, or ‘electric range’.

This is essentially the distance the vehicle can travel on electric power before its batteries need recharging.

We hope you found this page helpful. Our team of experts are available to answer any questions you may have, so either contact us via online chat, call us on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.