The world may be uncertain, but there are two things that are guaranteed: death and company car tax. No matter how hard you try to avoid it, if you have a company car, you will end up paying for it. With around 700,000 people in receipt of company cars, the chances are high that you may be one of them.
To the tax man, a company car is a cash cow. In the tax year 2021/22 alone, the total taxable value of company car benefits amounted to a staggering £3.95 billion. However, times are changing, and the rise of electric cars is throwing a wrench into the tax man’s plans.
Electric cars are attracting much less tax compared to their petrol and diesel counterparts, which is why they have become increasingly popular among company car drivers. In the tax year 2021/22, there were 243,000 recipients of company cars with CO2 emissions of 75g/km or less, compared to 137,000 in the previous year. Fully electric cars accounted for 17% of car benefit recipients.
The tax man is losing money, but he’s not giving up without a fight. Here’s how you can navigate the world of company car tax and come out on top.
**What is a company car?**
A company car is a vehicle given to you by your employer in addition to your salary. You can use it for both private and business journeys, including commuting.
**What is company car tax?**
Company car tax is a tax on the benefit of having a car provided by your employer. The tax is based on the car’s list price including VAT and extras, multiplied by its official CO2 emissions expressed as a percentage (known as the BIK rate). This result is then multiplied by your personal tax band to determine the amount of tax you must pay on the car.
**How can I reduce my company car tax bill?**
1. Choose an electric car: Electric cars are currently taxed based on 2% of their P11d price until April 2025, while petrol and diesel cars start at 25%. This can significantly reduce your tax bill, sometimes by as much as 90%.
2. Consider a plug-in hybrid: If you’re not ready to go fully electric, plug-in hybrids with longer electric ranges can still benefit from lower tax rates. The BIK rates heavily incentivize plug-in hybrids with longer electric ranges, offsetting their higher list prices.
3. Be selective with options: Adding certain options to your company car can push it into a higher tax band. Before adding any extras, double-check if they will affect your tax liability.
4. Look out for fleet trims: Fleet and leasing companies have the buying power to negotiate discounts on new cars. Some manufacturers offer fleet-focused trim levels that add essential equipment at a lower cost, resulting in lower benefit-in-kind payments.
5. Consider a tax-efficient commercial vehicle: Commercial vehicles weighing less than 3500kg and with a payload of 1000kg have a standard tax charge, rather than being taxed based on CO2 emissions. Electric commercial vehicles have a standard tax charge of £0. This loophole has made double-cab pickups popular among company car drivers looking for a more affordable option.
By following these tips, you can reduce your company car tax bill and come out ahead. Electric cars and plug-in hybrids are particularly attractive options due to their lower tax rates. It’s no wonder they have become the preferred choice for many company car drivers.
Remember to consider your personal circumstances and consult with a tax professional to ensure you make the best decision for your specific situation. With the right choices, you can leave the ring with your shirt on and minimize the impact of company car tax on your finances.
*This content is for informational purposes only and should not be construed as tax advice. Consult with a tax professional for personalized advice based on your specific circumstances.*
