company cars
Carl Elsby isMDof
chartered accountants
Elsby&Cowho
specialise inworking
with SMEs, start-ups
and family businesses
across theMidlands.
Formore information,
call 01604678470
or email
.
Theworld’smost fuel-efficient hybrid
car, theVolkswagenXL1,will be on
display in theDesignMuseum in London
alongside other Designs of theYear
awardnominees until 25August.The
VolkswagenXL1uses only 0.9 litres of
fuel per 100 km (or 313mpg), giving
it a very low carbon dioxide emissions
value of 21 g/km.TheXL1 is being
‘handcrafted’ atVolkswagen’sOsnabrück
factory inGermany.Approximately 30
are expected to be exported to theUK.
sustainabletimes
19
Time to reassess
the company car
The company carwasonce themost
popular typeof salary sacrifice
rewardamongst employees,
executives andbusinessowners.
Highlyvaluedas an important
marker of success, the larger, faster
and shinier thevehicle thebetter
–until new tax rulesmade it an
expensiveperk.
Prior toApril 2002, company car
owners paid tax basedon engine size
and annual businessmileage.However,
the introductionof amore punitive
emissions-based tax systemover the
past decade hasmade the traditional
company car significantly less attractive
financially.
Currently, a director or employee
earningmore than£8,500 per annum
whohas a company car is taxedon it as
a benefit in kind.The amount depends
on the P11D value of the vehicle,which
is determined by the list price (plus
extras,minus the cost of registration
and road tax) andCO2 emissions. It’s
worthnoting that the latter can be
affected by extras such as automatic
transmission and alloywheels.As a
benefit in kind, those earning £41,450
per year or lesswould pay 20%of this
amount in tax,with people earning
above that amount paying 40%.
Making the right choice
Higher tax rates have causedmost
accountants to advise owner-managed
businesses to reduce their tax liability
by opting for private ownership and
charging business usemileage to the
company.However, the combined
effects of tax changes and the increased
availability of environmentally friendly
carsmean that this is no longer always
the best option.Today, the company car
isworth considering oncemore.
High levelsof taxationhavemade the company car anunpopular
choice.However, the tide couldbe turning in its favour explains
charteredaccountantCarl Elsby
Exampleone:
AVWGolf 1.6TDI
Bluemotion costs £20,335 andhas CO2
emissions of 85 gsm. If your company
bought one of these before 31stMarch
2015, itwould be able towrite off the
full cost against tax in that year – a
corporation tax saving of £4,067 at the
20% small company rate.
The driverwould be taxedon13%of
its value (£2,643 p/a). For a higher rate
taxpayer thiswould be £1,057 p/a, but
for a basic rate taxpayer it could be as
low as £179 p/a, assuming they take the
common director’s salary of £7,692.This
allows them a benefit of £1,748 before
they start paying tax, so in this case they
would be taxed at 20%on just £895.
Example two:
The Porsche
Panamera S E-Hybrid retails at £88,967
andhas emissions of 71 gsm.Again, the
company can claim a full tax deduction,
which in real termswould save
corporation tax of at least £17,793 at
20%.The car benefitwould be only 5%
of the purchase price (£4,448), so the
tax bill for a 40% tax payerwould be a
relatively insignificant £1,779 p/a.
TheHMRCwebsite has a car fuel
benefit calculatorwhich can be a useful
referencewhenweighing up the costs
of differentmakes andmodels.Go to
.
aspx.
Facts andfigures inpractice
One hundred per cent (100%) FirstYear
Allowances are available on any car
with less than95 gsmup to31stMarch
2015, and then for carswith less than
75 gsmuntil 31stMarch2018.
For carswith emissions between
75gsm and95 gsm, the tax is 10%
in2013-14, rising to11%, 13% and
15% in the following three years.
For each additional 5% rise in gsm,
the percentage increases by 1%.The
appropriate percentagewill increase by
1% for all vehicleswithCO2 emissions
between95g/km and215g/km, to a
maximumof 35%.
Diesel vehicles are often a popular
choice for company cars.However,
there is currently a 3% supplement for
a diesel car, although this is due to be
abolished in2016.Hybrids conform to
the same tax rules as petrol cars,whilst
electric cars are exempt untilApril 2015.
For carswith gsm below75 (like the
Porsche), the percentage is 5%until 5th
April 2015 then9% and11% for the
next two years.
Salary sacrifice schemesmay also be
worth considering for business owners,
aswell as staff on averagewage levels.
Rather thanhaving a salary of £3,000
for example (which is subject to20%
tax and13.8%NI), an employee could
have an environmentally friendly car
withmuch lower tax andNI.
Businesses have a responsibility to
address the issue of carbon emissions
and supplying environmentally friendly
company cars is as good away to start
as any.No longer seen as uneconomical
or undesirable, low emission vehicles
are farmore financially viable than
their gas guzzling counterparts and
can perform just aswell.With the
right vehicle, buying and running a car
through the companymakes sound
fiscal sense oncemore.
