If you are an owner managed business and are considering whether your company should provide you with a car, there are a number of issues to consider. Before you decide on the car you will need to consider what tax relief the company will get versus how much income tax you will have to pay to receive the benefit of the car.
Capital Allowance claim for cars
A business can claim capital allowances on the purchase of cars. This mean a business can deduct a portion of the value of the car from the profits chargeable to tax thus reducing the tax liability.
How much can I claim?
The CO2 emissions of the car determines the portion you can claim.
From 1 April (Companies) / 5 April (Sole Traders / Partnerships)
Acquisitions from April 2015
| Car | Pool type allocation |
Allowance |
| New – CO2 emissions are 75g/km or less/electric car | Main pool | First year allowances – 100% of car value |
| New – CO2 emissions are between 75g/km and 130g/km | Main pool | 18% WDA |
| Used – CO2 emissions are 130g/km or less/electric car | Main pool | 18% WDA |
| New/used – CO2 emissions are above 130g/km | Special rate allowances | 8% WDA |
Acquisitions between April 2013 and April 2015
| Car | Pool type allocation |
Allowance |
| New – CO2 emissions are 95g/km or less/electric car | Main pool | First year allowances – 100% of car value |
| New – CO2 emissions are between 95g/km and 130g/km | Main pool | 18% WDA |
| Used – CO2 emissions are 130g/km or less/electric car | Main pool | 18% WDA |
| New/used – CO2 emissions are above 130g/km | Special rate allowances | 8% WDA |
Acquisitions between April 2009 and April 2013
| Car | Pool type allocation |
Allowance |
| New – CO2 emissions are 110g/km or less/electric car | Main pool | First year allowances – 100% of car value |
| New – CO2 emissions are between 110g/km and 160g/km | Main pool | 18% WDA |
| Used – CO2 emissions are 160g/km or less/electric car | Main pool | 18% WDA |
| New/used – CO2 emissions are above 160g/km | Special rate allowances | 8% WDA |
Acquisitions between April 2009 and April 2013
| Car | Pool type allocation |
Allowance |
| New – CO2 emissions are 110g/km or less | Main pool | First year allowances – 100% of car value |
| Not low emission and cost of car less than £12,000 | Main pool | 18% WDA |
| Not low emission and cost of car more than £12,000 | Individual pool | 18% WDA but restriction of £3,000 per year |
Company cars for private use
Employer National Insurance obligations
An employer providing a company car for private use has to pay Class 1A National Insurance contributions on the value of the car benefit and report this on form P11D.
The Class 1A National Insurance contribution is based on the vehicle’s P11D value (The official list price of the car including accessories) and relevant benefit-in-kind rate (See below link for HMRC table). The CO2 emissions and the fuel type of the car determines the benefit-in-kind rate.
The current percentage for Class 1A National Insurance is 13.8%.
Company liability = P11D value x Benefit-in-kind-rate x Class 1A National Insurance rate
Employee tax obligations
If a car is provided by your employer this requires to be added as an addition to your income. HMRC view this additional income on top of your annual salary.
The additional tax is based on the P11D value (The official list price of the car including accessories) the relevant benefit-in-kind rate (See below link for HMRC table) and your tax rate. The CO2 emissions and fuel type of the car determines the benefit-in-kind rate. Your tax rate is determined by calculating your other income – this will either be 20% or 40%.
Additional tax = P11D value x Benefit-in-kind-rate x your tax rate
Car fuel benefit charges
Employer obligations
If an employer provides a car and also provides fuel free of charge. The employer needs to report this on form P11D and pay class 1A National Insurance on the value of the fuel benefit.
The Class 1A National Insurance contribution is based on the relevant benefit-in-kind rate (See below link for HMRC table). The CO2 emissions of the car and the fuel type determines the benefit-in-kind rate.
The taxable amount for 2016/17 is based on £22,200 multiplied by the benefit in kind rate
The current percentage for Class 1A National Insurance is 13.8%.
Company liability = £22,200 x Benefit-in-kind-rate x Class 1A National Insurance
Employee tax obligations
If fuel is provided for private use by your employer this requires to be added as an addition to your income. HMRC view this additional income on top of your annual salary.
The additional tax is based on the relevant benefit-in-kind rate (See below link for HMRC table) and your tax rate. The CO2 emissions and the fuel type of the car determines the benefit-in-kind rate. Your tax rate is determined by calculating your other income – this will either be 20% or 40%.
Additional tax = £22,200 x Benefit-in-kind-rate x your tax rate
Link to HMRC benefit-in-kind table
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/532303/TC2b.pdf
Please get in touch for further explanation on the above