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Q: I run a Limited company and have 10 employees. Some of the staff are
salesmen and so the company provides them with a company car to do their job. I
need to replace two cars in the New Year and I would like to know what I should
consider from a tax perspective?
A: After many years of the government taxing cars so heavily
that they became prohibitive I believe that the tide is now turning. From a tax
perspective there are two areas of consideration for your company. Firstly, how
much of the cost of the car can be deducted against profits of the company, and,
secondly how much ‘benefit in kind’ tax does the employee have to pay.
Company
The rate of allowance available on cars falls in to three categories
depending on the CO2 emissions;
1. No more than 110g/km – 100% allowance in the year of purchase
2. No more than 160g/km – 20% writing down allowance per year
3. More than 160g/km – 10% writing down allowance per year
With regards to (2) it will take 13 years to get a tax deduction for 95% of
the cost of the car and for (3) it will take over 27 years! Clearly it makes a
lot of tax sense to purchase cars with low emissions as the full cost of the car
can be deducted from profits in the year of purchase. So, for your company, a
car costing £20,000 the after tax cost to the company in year 1 is £15,800. For
those people who are self employed the tax saving is even greater if you pay tax
at 40% with the car costing £12,000 after tax.
This is all very well but no doubt you will say that your sales people need a
good sized car and not some kind of super-mini with low emissions. I have done
some research on this and have discovered there are some family sized cars on
the market that come in under the 110g/km such as the Audi A3, VW Golf, Volvo
V50 estate and even a BWM 320d!
Benefit in Kind
With effect from 2008/09 a car emitting at no more than 120g/km will attract
a benefit in kind rate of only 10% of list price rather than the current minimum
of 15%. This means on a £20,000 car the employee will pay tax on the cash
equivalent of £2,000 (10% x £20,000) giving an annual tax charge of £400 for the
year for a basic rate tax payer.
Compare this with a car emission of 160g/km and the tax cost to the employee
ramps up to £800 a year for a car costing the same.
Any reader interested in discussing this topic can telephone Graham
Jennings on 01344 875000 Send your taxation and accounting queries to Graham
Jennings, Kirk Rice Accountants, The Courtyard, High Street, Ascot, Berkshire,
SL5 7HP or email graham.jennings@kirkrice.co.uk.
Please note: answers are given for general guidance only and specific
advice should be taken before acting on any of the suggestions made.
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