It can be wise, if you own a small venture, to buy company cars, so you can travel for business-related purposes easily. You may have to pay company car tax on these vehicles however, and this can be complex, so to make your life easier, Turner Little has compiled this guide to company car tax.
What is company car tax?
If as a small business owner, you use a company car for personal tasks – including commuting to and from the office, you will have to pay company car tax to HM Revenue and Customs (HMRC), the UK government’s tax agency.
Calculate your bill
You need to take a number of factors into consideration, to calculate your company car tax bill, as it is not charged at a flat rate. This includes the P11D (list price, delivery fees, road tax and additional extras, such as a sat nav) of the vehicle, as well as its CO2 emissions and your own personal tax bracket. Use HMRC’s company car tax calculator to determine how much tax you should be paying annually.
We should note that your annual bill is determined by the ‘benefit in kind’ (BIK) rate. Your BIK rate is worked out as a percentage of your vehicle’s P11D value, based on its CO2 emissions, and car industry portal Fleet News has provided a full breakdown of BIK rates which you can consult. Your BIK rate is then multiplied by your personal tax rate, to show you how much company car tax you owe per year.
Note the change
Be aware that the UK government has recently enacted a change to company car tax laws. Whitehall rolled out 15 new BIK rates – most on the lower end of the scale, in 2016, so people would be incentivised to buy cars with less CO2 emissions, as their tax bills would be lower. But this resulted in less revenue for the government, so they have now introduced more BIK rates to boost public funds. You have to use these new BIK rates if you registered your company car after 1st April 2017, but if this is not the case, you should work out your company car tax bill according to the previous BIK rates.
Petrol vs diesel
It is understandable that you would seek to reduce your company car tax bill, to lower your business outgoings, so how can you do this? One key area you should take into consideration is the type of fuel your car uses, as this is a core determiner of BIK rates. Interestingly they may be less efficient and environmentally-friendly than diesel vehicles, but petrol cars often have lower BIK rates, as they are typically small city cars, while diesels tend to be larger, so they have a lower P11D value. Therefore, you could reduce your company car tax bill by opting for a petrol vehicle in some, but not all, cases.
Lower your tax bill
There are various other factors, however, that you should take into consideration, if you are looking to reduce your company car tax. One obvious solution is to trade your existing car in for a cheaper model, so you can benefit from a lower P11D value which could significantly reduce your company car tax bill. You could also get a petrol car which has low CO2 emissions, giving you a more advantageous BIK rate.
But you should strive to ensure, when you are aiming to decrease your company car tax rate, you fulfil your legal obligations, or you could incur significant financial penalties. You should take the same approach to managing your businesses tax matters generally, to ensure your firm stays on the right side of the law. UK tax laws can be complex, so you may wish to seek expert guidance when handling these matters. As part of our corporate services, Turner Little supplies a business and legal service retainer which you can draw upon to navigate all your firm’s tax matters, and streamline outgoings.
Turner Little
Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider. You can receive our monthly newsletter by signing up using the form below.
