Does your company offer its staff company cars? Over the past decade fewer and fewer companies have offered company cars, reasoning that the tax charge on them is usually too prohibitive.
But is that always the case?
The answer is no. Sometimes it is more tax efficient to have a company car rather than buy the car out of taxed income.
There are two key factors to consider.
The first factor is whether or not you or your employees do much business mileage. If they do a lot of business mileage it is probably more tax efficient for them to own the car and charge the mileage to the company. If, though, they do little or no business mileage then it may be better for them to have a company car, subject to the second factor.
The second factor is whether or not your employees would be happy driving cars with low CO2 emissions. If they are, and if the car is brand new, then you could well find it is more tax efficient to provide them with a company car than for them to buy the car themselves. Nowadays there are some good, quite high performance cars that have low emissions, so do not dismiss this thought out of hand.
The way the tax charge is calculated is to multiply the manufacturer’s list price, plus the cost of any accessories, by a factor that depends on the emissions. For low emission vehicles (up to 50 g/km) the factor is 7% in 2016/17, 9% in 2017/18, 13% in 2018/19 and 16% in 2019/20. This means over a four year period your employee will only be taxed on 45% of the list price. That is quite a good deal for an employee who does little or no business mileage. These days you can get quite a decent car with emissions this low if it is a plug-in hybrid.
Even for the next band up, 51 to 75 g/km, the total benefit in kind over the next four years is only 59%, and there are many more perfectly suitable vehicles within this band.
Obviously you will not want to offer a company car as a free gift out of the blue. Presumably you will offer employees a reduced salary if they take a company car. The reduction will be calculated as the cost to you of providing the car. For vehicles within the ranges outlined above and staff who have little or no business mileage the staff should find they are better off taking the car than the cash alternative.
As the employer, you can offset the cost of the purchase against corporation tax as a first year allowance, provided the car is in the low emission band. Whether your employee takes the car or the money, you will therefore be able to offset the cost against tax.
You may even find some members of staff would like to keep their own car rather than take a company car for themselves, but then have you provide a company car to their spouse or even one or more of their children in return for a reduction in salary. The tax charge, which will be on the employee, will be the same whether the car is given to the employee or to a family member.