A large number of firms provide corporate vehicles to their employees, partly because their jobs need them to travel on a regular basis. However, the tax climate surrounding company cars has evolved over time.
This makes the idea less appealing to both the employer and the employee, so we explore the tax implications of company cars and if electric cars are a better deal than their petrol or diesel counterparts.
How does HMRC view company cars?
The answer to this question is contingent on how you want to use your vehicle. When a corporate automobile is used for personal reasons, such as going to the store or dropping the kids off at school, the tax authorities consider it a bonus.
As a result, they treat it as a taxable benefit, often known as a benefit-in-kind, which has tax ramifications for both the corporation and the individual.
How does Benefit in Kind charges affect company cars?
A company car is treated in the same way as other in-kind benefits like private health insurance or the provision of a personal cell phone. The employee benefits from it in the following ways:
The value of this benefit must be taxed by the individual.
Employer’s National Insurance (NI) on the benefit’s value must be paid by the employer.
If you’re the owner and director of a limited company, these additional costs may make owning a corporate automobile less tax efficient. That’s because you’ll have to pay the tax twice: first as the person getting the benefit and then again as the corporation that serves as your employer.
It is the employer’s responsibility to declare any in-kind benefits, such as corporate automobiles, to HMRC using a P11D form. This is it so that both the employer and the employee pay the appropriate amount of tax on the benefit.