The Return Of The Company Car? 

 

Many employees view company cars as a very desirable “perk” of their job but the high tax cost to the employee associated with these cars has led to a general reduction in companies offering them to senior staff and directors.  

However, a more friendly tax environment coupled with technological advances in engine design might just put the decline of the company car into reverse.

When the government first introduced a special low tax benefit for environmentally friendly cars with CO2 emissions of less than 120g/km, few cars qualified and if they did, they were typically small “city cars” which many senior employees and directors did not want.

Consequently, many car manufacturers have worked hard to increase the range of cars meeting the required emissions level so that now the range might actually surprise you.  

For example, BMW produce an energy efficient two litre diesel car with a CO2 rating of 109g/km which achieves over 68 miles to the gallon. 

The tax cost would be only 14% (2012/13) of the list price (plus extras) so for a car costing £30,000, the actual cost to a 40% taxpayer would be only £1,680 a year. In return the employee has the use of a 2 litre car which is fully insured and road taxed.

While diesel cars attract a slightly higher tax rate than their petrol counterparts, they usually have lower emissions levels so the annual cost of the right sort of vehicle starts to make a Company car seem attractive from a tax point of view.

It gets better though, because if the car also has CO2 emissions of less than 110g/km, the company gets an immediate write off for the total cost of the vehicle against its taxable profits.

So in the case of the car in this example, both the employer and employee benefit as does the environment. 

Best to hurry though as this scheme ends on 1 April 2013 and will be replaced by a more demanding CO2 emissions limit of 95g/km if the tax benefits are to apply.

There are a couple of bear traps to avoid though.  For a car to qualify it must be new (though demonstration models are fine) and you need to avoid buying the vehicle on a finance lease.  This company tax break is really only relevant for either an outright purchase or HP.

 

If you are thinking of changing your company car or indeed considering whether to offer cars to employees at all, Monahans can help advise on these important tax efficient staff benefits.

For more information, please contact Monahans via the link below.