The true cost of having a company car
What this employment benefit really costs.
How the benefit charges are calculated
The car benefit charge for a company car is based on the list price of the car including any accessories, its carbon dioxide emissions (calculated using a system known as the appropriate percentage), the type of fuel it uses, whether you pay anything towards the car, and whether it was available for the whole tax year.
This tax year 2016/17, the appropriate percentage is 21% of the list price for cars with CO2 emissions of 120g/km or less. The charge increases by 1% for each additional full 5g/km up to a maximum charge of 37% for emissions of 220g/km or more*.
If the car uses diesel there’s a 3% supplement on top. But the maximum charge overall is still 37%.
An example
So in practice this is how it works:
Let’s say the list price for a company car – including accessories – is £21,000, the car has CO2 emissions of 185g/km and it uses petrol.
The appropriate percentage will increase by 13% to 34% because it is 65g/km above the 120g/km threshold. Therefore, the taxable benefit in this example is £7,140 (£21,000 x 34%).
The actual tax deduction is paid at your highest rate of tax. This means if you’re a basic rate taxpayer the company car will cost you £1,428 (£7,140 x 20%) – or £119 a month – this tax year. Meanwhile, if you’re a higher rate taxpayer, the car will set you back £2,856 or £238 per month at 40% tax.
If the car uses diesel, the taxable benefit will rise to £7,770. The benefits percentage steps up from 34% to 37% with the addition of a 3% diesel supplement. This time a basic rate taxpayer will pay £1,554 (£7,770 x 20%) – or £129.50 per month. Higher rate taxpayers will pay £3,108 (£7,770 x 40%) – or £259 per month.
Bear in mind this possible scenario. You're a basic rate taxpayer but the cash equivalent of the car pushes you into the higher rate tax band. If that happens, part of the calculation will be taxed at 20% and the remainder at 40%.
Contributions and fuel
If you make a capital contribution to the cost of the car – up to a maximum of £5,000 – your tax bill will fall.
Don’t forget, if your employer pays the cost of fuel for private use, it will be treated as a taxable benefit too.
Try this HMRC calculator to work out the tax calculation for your own company car.
*Taxable benefit starts at 7% of the list price for cars with 0g/km to 50g/km emissions, 11% for emissions from 51g/km to 75g/km and then an 15% at 76g/km to 94g/km. Then there’s an additional 1% per 5g/km from 95g/km up.
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Comments
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Maybe the heading should have been, "the true cost of voting Tory". Since Margaret Thatcher, indirect taxation has been increasing, mainly because most people don't have the records to capture all their annual tax expenditure, and unlike a p60, no way of finding out. Unfortunately I have little faith in Cameron or Osbourne doing things any differently. With vat up to 20%, (another insiduous Tory tax. Remember pre-Thatcher days at 8%) No Doubt others may comment that the country was broken during the 70's, (not much different than recent comments about the UK!). I say, "if the fan belt's broken; fix it, don't scrap the car!" Still, now Camerson's bringing in legislation to make it easier for employees to be offered a severence package, (read sacked), maybe company car tax won't be a problem for many; soon!
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As expected, this article demonstrates the eagerness with which HMG will leap on any bandwagon that could provide any opportunity to push up their extortion. If it produces more than a minimal amount of the gas, CO2, that is necessary for life on earth and has little or nothing to do with Global Warming – charge the victims more. If it uses diesel because it is more popular now – charge the victims more. It's long past time we fought back but getting people to come together to form a large enough pressure group has proved impossible. It's why large corporations, with expensive “lobbying” clout behind them, manage to twist policy in their direction.
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The petty politics and 'image' BS associated with company cars is one of the reasons I went self-employed having been very successful as a sales rep for three years from the age of 19. The current rate of mileage rate tax deduction, whilst not over generous, is still a worthwhile incentive to running your own vehicle if you don't have to suffer the 'image' nonsense. I deal with several extremely high profile customers, but my car is usually left in the depths of some massive car park and by the time some manager walks me back to my car they are sold on the products I sell and don't give a toot about the vehicle I'm driving.
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03 October 2012