Steer com­pany car around tax ob­sta­cles

The Peterborough Evening Telegraph - - BUSINESS - Ken Craig of Rawl­in­sons

Gov­ern­ment pres­sure in the UK and other coun­tries has forced man­u­fac­tur­ers to re­duce car emis­sions dra­mat­i­cally over the last 15 years.

One tac­tic has been to tax com­pany cars ac­cord­ing to their CO2 out­put. Year on year, chang­ing lim­its have meant that the tax charge for keep­ing the same com­pany car has risen, with the ex­cep­tion of that for very high CO2 emit­ting cars.

Very low CO2 emit­ting cars qual­ify for es­pe­cially low tax charges and gas-guz­zlers have es­caped the in­creases. It is driv­ers of com­pany cars in the mid-range that con­tinue to be hit the hard­est, and those with older cars are worst off.

For ex­am­ple: In 2009 the CO2 emit­ted by a Vaux­hall Vec­tra 1.8 was 175g/km. When the car was new the tax­able ben­e­fit in kind was 23% of its list price, whereas for 2017/18 it’s 34%. There­fore, as­sum­ing a list price of £18,000 the tax­able amount was £4,140 eight years ago, but it is now £6,120. As a 40% tax­payer that is an an­nual tax bill of £2,448, which is prob­a­bly about what the car is worth.

There­fore, the ques­tion a di­rec­tor must an­swer is whether it is tax ef­fi­cient to keep driv­ing an age­ing com­pany car. The al­ter­na­tives are to re­place it with a lower CO2 emit­ting ve­hi­cle, but that costs money, or trans­fer it to their per­sonal own­er­ship.

If you are driv­ing an old com­pany car it can some­times be trans­ferred at a rel­a­tively mod­est ini­tial tax cost. The tax­able amount is the mar­ket value of the car at the time it is trans­ferred. In our ex­am­ple, that is roughly 60% less than the tax­able amount the di­rec­tor would have been charged had they re­tained the car as a perk. While it might be a no-brainer to trans­fer the car from the com­pany to the di­rec­tor, the ef­fect on fu­ture car run­ning costs must be con­sid­ered.

There are two ways to tackle these:

The com­pany can still pay the run­ning costs and ob­tain tax re­lief for them, but you will be taxed on the cost of the bills as a perk, though this is still likely to be cheaper than pay­ing the car ben­e­fit charge. Plus, you’ll be able to re­duce the tax bill by claim­ing a taxfree mileage al­lowance for your busi­ness jour­neys.

The com­pany can pay you the tax-free mileage al­lowance (for which it can claim a tax de­duc­tion) and you can pay the bills. This op­tion has the ad­van­tage that em­ploy­ers’ NI is not payable on a mileage al­lowance paid by the com­pany, whereas it is on the value of the run­ning costs it pays for you. How­ever, if you do not drive much on busi­ness, the mileage al­lowance might not be enough to cover the car run­ning costs you have to pay.

So, you (or your ac­coun­tant) should do some num­ber crunch­ing to find the most tax-ef­fi­cient op­tion.

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