A company car is generally perceived as a great thing to have, after all you get a new car without spending any of your own money. Well, not quite. There are costs even if the car is not actually yours so it’s important to work out the best deal for you and your work-life balance.If the job demands a lot of time on the road, chances are that the standard cooking models are the standard family hacks such the Ford Focus, Vauxhall Astra – maybe a VW Golf or a Peugeot 308.
If you want something a little more exotic, then some companies will let you upgrade by allowing employees to make a cash contribution to the car – perhaps there’s even the opportunity for a rebate if you go in the other direction and opt for a cheaper car.Nearly all company cars are leased and, from the chairman to the travelling salesman, the list of new cars available may incorporate restrictions on CO2 or safety ratings to help keep those leasing costs down. Of course, the biggest downside is tax, and or, what HMRC sees as Benefit in Kind which you have to pay for any personal use – including driving to and from work.
The BIK rate is a percentage of its P11D price, based on how much CO2 it emits. The lower the car’s emissions, the lower the rate of BIK; for example, a zero emission car has a rate of 7% and a car with high emissions will attract a rate of 37%. The P11D value comprises the car’s list price plus VAT, delivery and any options costing more than £100. To calculate BIK, multiply the car’s P11D value by the percentage that applies to its CO2 emissions. Then multiply that figure by your income tax band – either 20% or 40%. This will tell you how much tax will be deducted from your wages. There are more BIK changes in the pipeline but right now, instead of simply being taxed on the BIK value of a chosen vehicle, company car drivers are taxed on whichever is higher – the benefit in kind value or the salary sacrifice amount. This change applies to all vehicles except ultra-low emissions ones.
Be careful when it comes to fuel as well. While an employer might offer to pay for all your fuel, this counts as another benefit and therefore more tax being paid out of your salary. Low mileage users might find it beneficial to pay for their own fuel.
Company car tax is designed to encourage business drivers to choose cars with lower CO2 emissions, so the amount payable rises on a sliding scale in line with emissions.
There has been a steady increase in grey fleet, where employees opt for a cash alternative so they can use it to fund their own car. So, what’s the benefit of opting out of the company car scheme? Well, there be a wider range of cars than your employer might offer. Some schemes will offer cars from only one brand, or will not allow sporty models or convertibles. If you opt out you’ll get a cash allowance that will be roughly what your employer would have paid to lease the car, minus any income tax due on it. This can then be used to fund the lease on a vehicle of your choice. You can include a full maintenance package on a personal contract hire lease which will include all servicing, maintenance and repairs, breakdown cover and tyre replacement. The only additional costs will be Insurance and fuel. You should also be able to claim for business usage from your employer.
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