Cars for the family
One of your dependents needs a car. They don’t work for your company and so wouldn’t be entitled to a company car in their own right. However, would it be tax effective for you have two company cars but let them use one?
More than one company car?
Scenario. Your son or daughter is making their way in the world and would like to buy a car but they cannot afford the cost of running it. You would like to help but if you give them the money it will be after you have paid tax and NI at, say, 41% which makes it expensive for you. Wouldn’t it be nice if the company could own another car and let them use it instead?
Company provides. If a second company-owned car is made available for private use as part of your remuneration package, the company can pay for all the repairs, running costs and even the insurance, and claim Corporation Tax relief on these expenses as well as the car itself. The catch is a benefit-in-kind charge on you for a second car. So how much tax will this cost you?
You
Old advice. In recent years we’ve seen a steady increase in the level of taxation on company cars. So much so, that the tax cost on the provision of a second company car was prohibitively high and generally the advice had been not to provide second company cars.
Emissions change. The taxable benefit of company cars is based on their CO2 emission ratings. The lower the rating, the lower the percentage of list price used to calculate the taxable benefit. It starts at 15% for cars with 140g/km and increases by 1% for each 5g/km thereafter up to a maximum of 35%.
For example, if your company buys, say, a Vauxhall Corsa Life 1.0i 12v three-door (list price £8,835), which has a CO2 emissions figure of 127g/km, and makes this available for private use by your son or daughter, the tax cost to you as a benefit-in-kind would be as follows:
Tax cost. £8,835 x 15% = £1,325.25 taxable on you at 40% = £530.10. That’s the cost of the car plus all its running costs for just over £500! The savings can be greater for more expensive cars.
Timing. If the second car arrives as a present in, say, July the tax cost for 2006/7 will be even less because the car will have only been available for just nine months of the tax year (say, July 6, 2006 to April 5, 2007).
Your company
Running costs. Obviously, your company has to pay for the financing and running costs of the car. However, this is going to work out cheaper from a tax bill point of view than drawing the money out of your company, paying tax on that and using the net of tax amount to fund the car personally.
Employers’ NI. The company will also have to pay employers’ NI at 12.8% on the value of this car benefit.
Corporation Tax. Your company would also get a 100% tax deduction for the cost of the car if it has an emissions rating of 120g/km or less. Otherwise it would be 25% up to a maximum of £3,000 for cars costing over £12,000.
Tip. To avoid any quibble with the Taxman, have this second car recorded as part of your remuneration package with the company. It’s tax deductible for the company on the grounds of being wholly and exclusively necessary for it to keep its key member of staff happy!
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