Taxing Company Cars

BIK of Company Car – Employee

• List price of car x applicable CO2 emission % = Company Car BIK Value
• CO2 emission % x £24,500 (20/21) = Fuel BIK Value (i.e. Paid private fuel)
• Car & Fuel BIK values are taxed at applicable rate of income tax (20%/40%/45%) and tax collected either through a restriction in the employee’s tax code or by payrolling of benefits if the employer has registered

BIK of Company Car – Employer

• Class 1A NI on BIK value of vehicle @ 13.8%
• Class 1A NI on BIK value of private fuel (if provided) @ 13.8%

Employer Tax Benefits of Company Cars

• Corporation tax deduction for lease expense of the vehicles (15% of the lease expense is disallowed where the CO2 emissions exceed 110g/km for leases entered into after 1 April 2018)
• Corporation tax deduction for the employers NI incurred on the Company Car/Fuel Benefit in Kind
• Company Vans qualify for 100% Annual Investment Allowance (‘AIA’)
• Rates have continued to increase over time
• 4% surcharge for diesels that do not comply with RDE2
• Rates are not currently available beyond 2023/24 which can make planning difficult
• Leases entered into today could give rise to increased tax payments in future years

Approach to Fuel

Company Car

If the company provides all fuel then either:

• The individual needs to reimburse the company for their private mileage using the Advisory Fuel Rates; or
• The individual will incur a fuel benefit charge

If the employee pays for both business and private fuel then the individual should reclaim the business miles from the company at the advisory fuel rates

Private Car

Employees re-claim business miles from the company through expenses at approved mileage allowance rates

Changes In Legislation

OpRA (Optional Remuneration Arrangements)

• If you offer employees a choice between car allowance or company car, or allow salary sacrifice as a contribution towards their company car, they may be impacted by rules on optional remuneration from 6 April 2017.
• Type ‘A’ – Any arrangement where an employee or director gives up the right (including a future right) to an amount of earnings in return for a benefit
• Type ‘B’ – Any other arrangement under which an employee or director chooses to be provided with a benefit rather than an amount of earnings
• The benefit in kind charge for a car ‘provided’ after 6 April 2017 under OpRA is now calculated at the higher of the car benefit charge and the amount of salary forgone in relation to the benefit.

OpRA (Optional Remuneration Arrangements)

• Rules apply for new employees, new agreements and where amendments are made to existing arrangements
• ‘Grandfathering’ arrangements available until 6 April 2021 on existing arrangements
• You need to ensure your company policies are clear as to how your car allowance is made up and record the breakdown of any elements provided
• Unclear as to how HMRC will police the changes

Salary Sacrifice

• HMRC no longer permit salary sacrifice contributions to reduce the BIK charge on company cars/fuel
• Why? HMRC are concerned about the increasing use of salary sacrifice and the perceived loss of tax and NI receipts