A company can purchase a company car for its employees to use on business trips as well as for personal use.
When purchasing a company car, a company will receive a reduction to its corporation tax liability for the year, based on the purchase price of the vehicle.
However, personal use of a company car will create a Benefit-In-Kind (BIK). This generates further tax liabilities for the company and for the individual which include:
• Personal tax at the individual’s marginal rate based on the BIK value – reported in the individual’s annual self-assessment personal tax return
• Employer’s NI for the company based on the BIK value – reported through the company year-end accounts
The value of this BIK is based on the list price of the vehicle when new, regardless of whether the vehicle purchased is from the second-hand market.
Fully electric vehicles and long-range hybrids
Electric Vehicles and Plug-in Hybrids with long electric ranges have Benefit-in-Kind rates which are currently significantly lower when compared to traditional petrol/diesel powered cars.
Fully electric vehicles and Plug-in Hybrids with electric ranges of more than 130 miles have the lowest BIK rates overall. This makes the purchase of an electric/long-range hybrid an attractive proposition.
For traditional petrol/diesel cars, it is more likely that the tax generated by higher BIK rates will outweigh any corporation tax relief received by the company.
Nasa Consulting offers its clients a service to work out expected taxes for the purchase of company cars.