Company Cars

Example: Mercedes AMG Cost – £50,000 CO2 – 227

From the company’s point of view, the car would be treated as an asset for corporation tax purposes and would attract a writing down allowance at 8% of the cost price annually until fully depreciated.

The 8% writing down allowance would be restricted to the business use element only

1 – If ABC Ltd purchased a company car for £50,000, the tax exposure would be as follows:

PIID Benefit: £7,400

Company Tax Exposure: £2,887

Total Tax Liability for the year: £10,287

In addition, there would be monthly lease payments of say £800 per month which would impact on the company’s cashflow.

Tax Exposure

PIID Benefit

Car Benefit: £18,500

Income Tax @ 40%: £7,400

Fuel Benefit will also need to be considered if the company is not reimbursed for private miles done. £0.17p per mile.

TAX EXPOSURE – ABC LTD

Class 1A NIC: £5,441

Motor Car Running Costs – per year

Fuel: £350 pm = £4,200

Insurance: £100 pm = £1,200

Servicing: £600 = 600

Total: £6,000

CORPORATION TAX DEDUCTIONS

Class 1A NIC: £5,441 x 19% = £1,034

Motor Car Running Costs

£6,000 x 19% = £1,140

Total: £2,174

CAPITAL ALLOWANCES – £50, 000 X 8% SAY 50% PRIVATE USE

Class 1A NIC: £2,000 x 19% = £380

Total: £2,554

NET TAX EXPOSURE

Class 1A NIC: £5,441

2000 x 19% = (2,554)

Total: £2,887

2 – Should the car be purchased personally?

This would impact on the individual’s cash flow as there would be the outlay for the purchase cost and the motor running costs. For the purposes of this example, we have taken it that the monthly lease payments are posted to the Director’s Current Account.

Dividend Tax: £3,442

Company Tax Exposure: (£950)

Total Tax Liability for the year: £2,492

SEE BELOW CALCULATIONS

Monthly Lease Cost: say £800 per month = £9,600

Motor Car Running Costs, per year = £6,000

Total: £15,600

Business Car Mileage

10,000x 40p = £4,000

£4,000x 25p = £1,000

Total: £5,000

TAX EXPOSURE – ABC LTD

Motor Car Expenses posted to Director’s Current Account: £15,600

Less: Car Mileage Claim: (£5,000)

Net Amount: £10,600

Dividend Tax @ 32.5% = £3,445

TAX EXPOSURE – ABC LTD

Corporation Tax Deductions

Car Mileage £5,000 x 19%

Total: £950

Summary:

On the whole it’s not generally worthwhile to have a company car unless it’s very energy efficient, or the person doesn’t have the cash outside of the company to purchase the car personally.

The more CO2 efficient the car, the more worthwhile it is to have it as a company car.

Fuel Benefit will also need to be considered if the company is not reimbursed for private miles done. £0.17p per mile.

Written by Vegan Accountants

The expert team at Vegan Accountants take away the hassle and pressure of your accounts and tax compliance. Our wide-ranging services give us the flexibility to deliver tailored support for your business.

February 18, 2022

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