Q&A: Tax and company vehicles

Ray Coman of chartered, certified accountants Coman & Co explains the key tax implications of company vehicles

Should I keep a car in my company?

Generally speaking, it’s more tax efficient to own a car personally and charge the company a mileage allowance (eg 45p a mile). However, the higher the mileage and the less polluting the car the more likely you are to be better off with the car kept in the company.

What tax do I pay for the benefit in kind of a company car?

You will have to pay tax on the benefit in kind of the car and again if your company provides you with fuel. The amount of deemed benefit in kind will normally depend on the price of the car and its CO2 emissions. Employers are liable for national insurance on company cars. The additional tax liability is a disincentive for employers to provide company cars as a perk.

What about ‘pool cars’?

You would not be liable for tax on a benefit in kind if the company car you use is a pool car. A pool car one that is: available to, and actually used by more than one employee, and not to the exclusion of others; used for employment reasons, with only incidental non-business use; not left overnight at or near to any employee’s home.

What about sole traders and partners?

For sole traders or partners in a partnership, there is no benefit-in-kind charge as there is with directors, therefore there is no tax disadvantage to having a car in the business. Business use should be apportioned and then capital allowances calculated accordingly.

What are the capital allowances on cars?

For car acquired in 2014/15, there will be:

  • 100% first year allowance for cars that have a CO2 emission of 95g/km or less.
  • 18% capital allowance for cars with a CO2 emission more than 95g/km but not exceeding 130 g/km. These cars are added to the general pool.
  • 8% capital allowance for cars with CO2 emissions of more than 130 g/km. These cars are added to a separate pool.

For cars acquired before 6 April 2009 (or 1 April 2010 for companies) separate rules apply for capital allowances on company cars.

Cars with a value (less any capital allowances already deducted) of less than £12,000 will obtain a capital allowance of 18%. For cars with a value of more than £12,000 the capital allowance is capped at £3,000 per annum. 

What are the tax benefits of ‘green’ cars?

The capital allowances that can be claimed on electric cars, hybrid cars and other environmentally friendly vehicles are higher than for cars running on petrol and diesel. The deemed benefit in kind will also be lower.

Further reading