17th OctCompany Car Tax details
It's not our favourite topic to discuss but if you don't understand the tax implications of your company vehicle you could get hit with a large bill you're not expecting. So please find below details of the current (As at October 2010, if reading past this date please review the HMRC website for any changes, please also note that this is not advice it is purely the current details as shown by the HMRC) Company Car Tax Details and some other websites that can help you.
It's probably best to start with a basic definition of what a company vehicle is and when a tax charge becomes available. If you are an employee or steward (director) of a company, you earn over £8.5k per year, and a vehicle is provided to you or a member of your direct family by the company, and the vehicle is available for personal use you are eligible for a tax charge. You must also take into account that a further benefit in king tax charge is payable if the company also provides a fuel subsidy or fully pays for fuel. Please note a charge is not payable if you have access to a pool vehicle that is only available on the job.
The amount of tax that you will pay depends on your current rate of earnings. A basic rule of thumb is that you will pay the same amount as your income tax rate. This will mean either 20%, 40% or if you are lucky enough to earn over £150k you will pay 50%. To check your exact amount contact your local tax office (number available on the HMRV website).
What is sure is that if you are about to receive a company vehicle your monthly tax charge will increase. No matter what vehicle you have make sure you Compare Car Insurance quotes on your new vehicle and reduce your annual premium cost..
To find out the taxable amount of the vehicle you need to ask the P11d value when you buy or are given a company vehicle. The P11d value is worked out depending on the on the road price of the vehicle and the level of emissions that the vehicle produces. Obviously the lower the price and the emissions the lower the P11d value and the lower the annual tax charge. If you are earning a significant amount of money and like the big thirsty vehicles you need to be aware that there is no upper limit of tax charge you can now be billed.
So now you know what is and is not chargeable its worth looking at some basic ways to choose a vehicle which will carry a lower liability.
Look for an electric car. Electric based vehicles are actually tax exempt for a short period. This is because they basically have no emissions. Whereas there should normally be a nominal charge due to the value of the vehicle the revenue has allowed a 'grace' period to encourage business owners to purchase the more environmentally friendly vehicles.
Whilst it might come as a bit of a shock its worth noting that diesel vehicles are actually lower emission rated than petrol vehicles. There is a cost ratio to be worked out here as diesel engine vehicles are slightly dearer than petrol vehicles. So whilst the C02 emissions drop the P11d value actually increases. The difference should still make the rateable value less however you need to work this out against the increased value of the vehicle. By asking your commercial vehicle dealer they will be able to quickly point you in the right direction.
So why do you have to pay a tax charge if you use a vehicle, surely you already pay tax through your salary. Well this is true however if you are in a position where you get additional extras through work you will need to understand the term benefit in kind. This is essentially a term used for a tangible benefit paid by the employer which is taken as a payment "in kind". In simpler terms if the employer paid you additional money to buy the items yourself you would be paying a higher rate of tax.
Sometimes a company will offer an employee the choice of taking a company vehicle (or job car) or take a flat monthly payment and buy their own vehicle. When this is the case you need to work out the taxable monthly payment on the increased salary payment or the charge taken on the vehicles rateable value. You also need to assess the value of either owning the vehicle yourself or having the vehicle on the balance sheet of the company. Once you are happy with the pro's and con's you can then make your choice.
Please check the current tax rules before you purchase a company vehicle.
Check the emissions table set by the HMRC by following this link