When you get use of a company car it’s a great perk of any job, but are you aware of the tax consequences of having
a company car? There are two key factors that you need to be aware of when you gain access to a company car, the
tax charge for the benefit in kind (BIK) incurred by the individual using the company car and the tax deduction
available to the business.
What are Benefit in Kind Charges?
A benefit in kind (BIK) charge is a tax on any benefits that you received from the company alongside your salary.
These can range from health/medical insurance to gym membership or in this case a company car. The BIK charge
that you’re taxed on as the person using the car is calculated as a percentage of the list price of the vehicle
when purchased brand new. The list price does include any delivery charges, optional extras and the VAT.
The percentage used to calculate the BIK charge varies depending on the CO2 emissions of the vehicles, and in the
case of hybrid vehicles the electrical range is also taken into account. This means that the lower the C02
emissions the lower the percentage, resulting in a lower BIK charge and a lower tax liability.
Where fuel is provided, i.e. the company pays for all fuel charges and the individual pays none, then an additional
BIK charge occurs which is calculated at the same percentage.
Claiming The Costs and Getting The Tax Benefits
While the individual gets taxed on the benefit the company gets to claim tax deductions for any costs involved in
running the car. This means all expenses relating to the car, from claiming capital allowance when purchasing the
vehicle to repairs and fuel costs, can be claimed as tax deductible expenses and reduce the company’s exposure to
corporation tax.
The capital allowances claimed does vary depending on the vehicle purchased, the capital allowances available
are:
- 100% first year allowance – this is only for new zero-emission cars
- 18% annual allowance on the written down value – this is for second hand electric vehicles
and all vehicles with emissions 1 and 50 g/km - 6% annual allowance on written down value – this is for all other cars
If you’re thinking about purchasing a company car it’s always worth considering the tax implications before making
the leap and committing to a car. Get in touch with us before you make the commitment, and we can help you
calculate the BIK charges and any tax benefits the company can receive.
