A company car could be any vehicle such as a van, motorcycle, or car. Primarily, business owners offer luxury to the employees. And employees get the complete freedom to utilize the vehicle for personal and business travel.
That said, the previously announced rates will be different in the coming months because of the havoc wrecked by Coronavirus pandemic. It means the current car registration date of April 6, 2020, will undergo revision. Nevertheless, the vehicle has to use the upgraded WLTP emission rates.
Here are some of the guidelines that can help you make an informed decision:
Do All Companies Have to Assign a Car?
Generally, a company car is part of the remuneration package. And yes, most companies do, in fact, provide it to their employees. That said, HMRC views the private usage of a company vehicle as a benefit, which means there will be taxation.
BiK or benefit in kind is all about the cash value of the company car. You take into account to calculate the total payable amount of employees’ Income and employer’s National Insurance contributions that go to the HMRC.
What about Tax on the Company Car?
Technically, the cash value of BiK revolves around using a variety of variables. For the most part, it is the manufacturer’s list price of the car that matters the most. But the type of fuel and CO2 (carbon dioxide) emissions are also part of the equation. Each year HMRC publishes a new percentage of the BiK.
As of now, it stands at 4%. Again, the rate changes depending on the fuel emission of the company car. Employees, for instance, can see the cash value of the company in P11D form every tax year. Also, the maximum cash value of BiK is 37%.
Calculation: How does it Work?
Manufacturer’s List Price of Car x standard BIK percentage = cash value of BIK
It is vital to understand that the government encourages the use of ultra-low-emission or electric vehicles. Besides, BiK percentage goes down for cars with low or ultra-low emissions.
For example, if the fixed amount is £24,500, and BiK percentage of the company vehicle is 13%, the BiK fuel amount is £3,185 (i.e., £24,500 x 13% / 100).
Manufacturer’s list price
It all comes back to the manufacturer’s list price, which includes number plates, standard accessories, and inclusion of VAT. Furthermore, the addition of metallic paint and specified wheels will also be part of the cost regardless of the original manufacturer’s list price.
It means, if there are any minor or major modifications, which the manufacturer did not provide, then you will also have to include that cost to the original list price. Remember, even if you made modifications in the middle of the tax year, the same manufacturer’s list price be applicable for the entire year.
Conclusion: Is It Worth It?
It is vital to take into consideration various options before you decide to provide a company car. Sure, it is still a perk, but there are new strings attached by the HMRC that intends to boost its tax revenue. In any case, do not forget to get advice from a professional tax accountant who can help you figure our more taxation scenarios.
We can help with all of your business and personal tax and financial planning needs. For a strategic review of your finances, please contact us.
Disclaimer: We don’t take any responsibility for actions taken based on above information. Please speak to our consultants if you need more information. This guide was written specifically for Smart Accounting clients. Some of the information contained in this guide might not be applicable if you do not have a business managed by Smart Accounting. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details are correct at time of writing.