Company Car Tax rules and why is different if I have Hybrid Car/Van (Nisan Navarra)

Frank_Sebem

Hi all

Not sure this is the right place for this so if it's not I'd be grateful if somebody would please post in the correct place. If it is please read on...

This is a question for my Brother who can't seem to understand what his accountant is saying.

Brother is a Director of a Garden Supply (Soil etc) company. At present he has his own car. For personal reasons he now needs to sell his car. So, he wants a company car. Can somebody please answer some of the following questions:

1. What are the Tax rates & implications if he were to take a car (Possibly Mercedes C Class on a 2 yr Lease Deal @ £300 PM from a Lease Company). By this, I mean how much will he have to pay in tax? is it his tax code itself that is affected? How do you inform the revenue?

2. How does it work with Fuel? Is he better just using the Company Deisel card or is he better filling the car up himself out of his own Pocket and then charging his company a certain amount per mile?

3. He has heard somewhere that it is different (and more beneficial) if he were to choose a Car/Van like a Nissan Navarro or Toyota Hi-Lux, L200 because these vehicles are classed as commercial vehicles. Is this correct? What are the Tax differences/benefits?

Thanks in anticipation.

Regshoe

As he actually has an accountant I would advise him to go back and get everything explained until he understands it - or at least understands what the implications of each choice are, that should be part of what you are paying the accountant for!

But to answer your questions (and for the benefit of others who may read this thread):

1. He has two options - he could simply lease/purchase a car in his own name then claim expenses from the company, which would be tax free if they are up to 45p per mile for the first 10,000 miles and 25p per mile thereafter. This can be very beneficial if you have a particularly efficient/cheap car as the payments can be a fair bit more than the real cost to you.

The other option is to have the company contract for the car and provide it to him as a company car. In this case the list price of the car is multiplied by a percentage that is based on the CO2 emissions and then this amount is then assessed as a taxable benefit on the person receiving the car. The cost of the car itself would be a deductible expense for the company - so the company would end up paying less tax, but your brother would personally be liable for more.

As an example:

Lets say I am provided with a Mondeo 2.0l diesel and it has CO2 emissions of 160g/km and the car has a list price of £20,000.

Looking at the tables 160g/km gives a figure of 21%, add on the 3% supplement for being a diesel, total is 24%. Benedit = 24% x £20,000 = £4,800. So I get taxed on £4,800, £960 at 20%, or £1920 at 40%, depending on whether I'm a lower or higher rate payer. In practice this is dealt with via adjusting the tax free allowance for the year - so you don't pay all of this in one lump.

2. With a company car there are a few options for fuel. You can have the company pay for all fuel (business and personal) in which case you would have an additional amount (currently £18,800) added to the list price above. As you can see this is a significant extra charge and so unless your brother is travelling a significant number of private miles or using a very inefficient vehicle this is unlikely to be worth it. Of course the company can claim all of the fuel as a business expense etc.

A second option would be to pay for the fuel himself and then claim back the costs of the fuel. If the rate used is no higher than the advisory limits given by HMRC (http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm) then there will be no taxable benefit, you can actually go higher if you can prove that the actual cost is higher.

Using my above example a 2.0l diesel (which in fact would likely be something like 1980cc or whatever - i.e. below 2000cc) the current rate is 15p per mile.

A third option would be to have the company pay for all fuel and your brother refund the costs of personal mileage. This could be beneficial, but could get rather messy - easiest is probably just to claim the 15p per mile.

3. He has heard correctly a number of these pickup trucks are classed as commercial vehicles and so are treated in the same way as vans, there are a number of tax advantages to this:

• If the company is buying rather than leasing then you get much better capital allowances treatment - though if you are leasing this (probably) won't be relevant.
• For a company car commuting classes as personal use - for a van/commercial vehicle it does not (for taxable benefit purposes). So if the vehicle is only used to commute and for business travel there is no personal use and so no taxable benefit
• If the truck/van is used for genuine personal use then the taxable benefit will be much lower than for a car. Instead of multiplying the percentage based on CO2 emissions by the list price and the fuel charge of £18,800 there is a flat rate taxable benefit of £3000 for the van and £550 for fuel if provided for personal use.

So if you compare to the relatively modest car above, the total taxable benefit for a commercial vehicle with fuel would be £3,550, as opposed to the total of £9312 (assuming fuel provided for personal use).

Of course a big truck is going to cost more to run in general - lower fuel economy, higher road tax etc.

Best thing to do would be to work through some specific examples and compare the difference.

Frank_Sebem

That is an excellent answer. Thanks a lot for taking the time to answer this so expertly and clearly. Still a bit confusing (that's just down to me) but I get the Gist.

I think he was considering an Audi A8 or Mercedes C Class

Thanks

sunshinetours

Company also would pay 13.8% Class 1A NIC once a year on the benefits provided don't forget. Its not an insubstantial amount these days on some cars, especially an A8 or C Class

Generally if considering a second hand car you will be better going the personal route and charging 45p a mile as new list price values are used for company car calulations

If I was him in his line of business - I would get a pick-up type vehicle signwritten for the business and buy a second hand nice car personally

chrismac1

I agree with the last two posts. The fun has gone out of most company cars these days! Going back 20 years it was a ridiculously under-taxed perk, not any more and in my view rightly so as it distorted the car market.