Taxes
Thinking of replacing your company car with a brand new one? Or wondering whether you should even bother having a company car anymore?
Here’s a rundown of the company car tax rules in place in the UK in the 2019-20 tax year and a look at the best, most tax-efficient company cars on the market today.
It used to be that having a company car was a great perk.Brand-spanking new Audi or BMW? Paid for by the company? Yes, please. Right?
Sadly, changes to the company car tax rules and a government crackdown on air pollution mean you now have to be extra careful when choosing your company car. Picking the wrong one could add a significant chunk of money to your tax bill.
Here’s a rundown of the company car tax rules currently in place in the UK. We’ll then do the maths and find out the best, most tax-efficient company cars you can buy in 2019.
HMRC treats a company car as a benefit-in-kind. This is because it’s a valuable benefit you’re getting in addition to your salary. The upshot is that you’ll have to pay tax on it, either via the PAYE system (Pay As You Go) or, if you’re self-employed, by declaring it when you file your self assessment tax return.
The amount at which your company is taxed is called the benefit-in-kind rate. Which rate applies will depend on:
Company car benefit-in-kind rates went up in 2018-19. And they’ve gone up again in 2019-20. This means that this tax year, you may have to pay even more tax on your company car than you did last year.
If your company car has a diesel engine, you may also have to pay a surcharge called the diesel supplement. In 2019-20, the diesel supplement is 4 percent.
The diesel supplement applies if your car:
The diesel surcharge and the higher benefit-in-kind rates on diesel engines are part of the government’s efforts to tackle air pollution in the UK.
In recent testing, nitrogen oxide — which is linked to 40,000 premature deaths a year — was found to be over legal limits in 33 local authority areas across England. In London alone, it’s estimated that about 2 million people, 400,000 of whom are children, are exposed to toxic levels of air pollution every day.
Diesel cars are one of the main sources of nitrogen oxide in the air. So, it’s not surprising that the government is trying to encourage British drivers to ditch them by hitting them in their wallets.
Let’s say you have a company car with a petrol engine. It has aP11D value of £15,000 and emits 60 grams of CO2 per kilometre. This means its benefit-in-kind rate in 2019-20 is 19 percent.
Your company car’s taxable value is £15,000 x 19 percent. That’s£2,850.
The highest rate of tax you pay is 20 percent. So, you’d pay 20 percent of £2,850. That’s is £570.
This means your company car will increase your tax bill by £570in 2019-20.
Let’s say you have a company car with a P11D value of £15,000that emits 60 grams of CO2 per kilometre. However, it has a diesel engine. This means its benefit-in-kind rate in 2019-20 is 22 percent.
Again, the highest rate of income tax you pay is 20 percent.
Your company car’s taxable value would be £15,000 x 0.22, that is£3,300.
So, having this company car would increase your 2019-20 tax bill by £660.
Like petrol and diesel company cars, hybrids and electrics also attract benefit-in-kind tax. That said, this is worked out differently.
The applicable benefit-in-kind rate depends on how many miles the car can drive without producing any emissions. This is known as zero-emission mileage. Electric cars never produce emissions, so they’re always taxed at the lowest rate.
For the 2019-20 tax year, hybrid and electric car benefit-in-kind rates were hiked up significantly. The lowest benefit-in-kind rate is 16percent. This is the same as the lowest benefit-in-kind tax on a car with a petrol engine that emits up to 50 grams of CO2 per kilometre.
The upside is that the rates will be slashed next year. And this will make hybrids and electrics the cheapest company cars for tax in the UK.
Let’s say you buy a company car with an electric engine. This means it produces zero emissions. Its P11D value is £25,000. The highest rate of tax you pay is 20 percent.
In 2019-20, you’d pay tax on your company car as follows:
£25,000 x 16%: that’s £4,000 taxed at 20 percent. So, an electric company car would add £800 to your tax bill.
But in 2020-21, your benefit-in-kind rate will drop to a mere 2percent. This means it’ll add only £80 to your tax bill.
Well, company cars are still a great perk to have. You could drive a much nicer car than you’d be able to afford, without forking out the money for the ticket price. And your employer might also pay for running costs such as insurance, maintenance and business mileage.
That said, you’ll have to pay for the privilege come tax time.And, depending on which car you have, it could be a lot more.
A diesel company car will put the biggest dent in your wallet.They have the highest benefit-in-kind rates. And, unless you have the latest Euro 6 D emission standard, you’ll probably get hit by the 4 percent diesel surcharge.
Hybrid and electric cars are currently taxed at the same rates as petrol cars. Since they tend to be costlier to buy, a petrol company car will probably be the most tax efficient in 2019-20. That said, in 2020-21, benefit-in-kind rates for hybrids and electrics will drop dramatically. So, in the long-term, an electric car will be the cheapest company car for tax.
Yes. You need to tell HMRC if you start using a company car. You’ll also need to tell HMRC if you change your company car or stop using one. You can do this online.
To let HMRC know you have a company car (or to tell them you’ve changed it or stopped using one), you’ll need:
Looking to change your company car in 2019?
Here are the five most tax-efficient company cars you can buy this year:
Don’t like any of these cars? Is there another one that caught your fancy? Use this company car tax calculator to find out how tax-efficient it is.
