If you have recently landed a job that promises a company car, you are probably feeling pretty chuffed about getting a new set of wheels. A company car is certainly a perk to many. But, is a company car all it’s cracked up to be?
In this article, I’ll be putting the company car under the spotlight to see if it is a perk or a tax burden.
Let’s start with what a company car is and then muse the pros and cons.
What is a company car?
A company car is a vehicle provided by a company for business and personal use by an employee. They are usually offered to those employees who need to travel extensively for their job, such as sales people or regional managers who need to regularly work in different locations.
What are the advantages of having a company car?
Here are some of the reasons you may choose to have a company car:
- A company car can be an attractive part of a salary package, so from a business perspective it is a useful lever to boost morale and attract talent
- You could end up with a better car for less money – there are lots of discounts to be found with some of the top car brands, such as Audi, BMW and Mercedes
- You can usually get better deals with business car leasing than leasing privately
- It’s less hassle – all of the car tasks like organising tax, insurance and getting your vehicle serviced will be handled by your business and the car leasing company
- You aren’t tied into a financial contract with the car leasing company – the company you work for is
- If you are racking up the miles in your job, why put your own car under strain and depreciate it?
- If you aren’t in a financial position to secure car finance to purchase your own car, a company car could be your best option to get a decent set of wheels
There are also disadvantages to having a company car, largely around company car tax. Let’s take a look at the drawbacks of having a company car and the rules around tax.
What are the disadvantages of having a company car?
A new car, without any outlay, may seem like the perfect company perk, but is it really your best option? Here are some of the reasons you may decide not to take on a company car:
- If you are doing lots of miles, chances are you’ll end up with a standard car, such as a Ford Focus or a Vauxhall Astra – a problem if you have your heart set on a BMW!
- There may well be limits on the choice of car, according to safety regulations
- The list of cars available may come with CO2 restrictions
- The biggest downside is the tax you will pay which will be based on the value of the car, its CO2 emissions rating and your personal tax rate (see more on this below)
- Company car tax will fluctuate according to the BIK rates set by Government in the budget
- If you leave your job, you lose your wheels
Company car tax – what you need to know
A company car is an employee benefit and as such is taxed as a Benefit-in-Kind – BIK tax. So, how is it calculated?
Company car tax is one of the taxes the Government chooses to levy. It is subject to change in the Chancellor’s annual budget. Tax band rates are primarily based on a car’s CO2 emissions. This is because the Government wants to help reduce overall CO2 emissions in the UK.
The amount you pay is also determined by the list price of the car, so you can see how choosing a top of the range vehicle as a company car will actually cost you much more in tax. You will need to consider this when choosing a car to see if the tax burden is actually worth it.
Calculations are also combined with your personal tax rate. In addition, the type of fuel also comes in to play when calculating company car tax. Pure electric vehicles have a substantially lower BIK rate. Petrol is better than diesel.
So, you start by finding the official list price of the car (excluding Vehicle Excise Duty (VED) and First Registration Fee (FRF), but including delivery and VAT). It is known as the company car’s P11D value. This is multiplied by a Government-set company car tax rate applicable to the Car’s CO2 emissions and fuel type. Your top level of tax is then applied to determine the amount of tax you pay.
See more on company car tax here.
Is a company car worth it? Well, it will depend on your circumstances, your pay and the kind of car you choose. There are pros and cons. You may want to consider a car allowance, rather than a company car, though you will also still be taxed on this.
A car allowance does give you more flexibility over the car you choose. With a car allowance – a sum of money paid to you in addition to your salary as a substitution for a company car – you will have complete ownership of the vehicle. This means if you leave the company you work for you will still have your beloved wheels.