Is a company car still a benefit?

As with most things and particularly with tax there is very rarely a clear answer. However, there are 3 main points to consider:

1. Is it a car?
2. If so, is it a green car?
3. If not a green car, what is the business usage of the car

Is it a car?

“Is it a car” sounds relatively straight forward, however, the definition of “a car “ is, it is a mechanically propelled road vehicle, unless it is:

1. A goods vehicle
2. Motorcycle
3. Invalid carrier, not normally used as a private vehicle and unsuitable to be used

It is therefore normally a car unless the construction is primarily suited for the convenience of goods or burden of any description. This means that vans which incorporate double cab or pick-ups are not cars. The level of benefit for these is currently £3,150. If an employee has a £30,000 petrol car with CO2 169g/km the benefit would be £8,400 as compared to £3,150. This could mean the difference to a 40% taxpayer of £2,100 per year and could significantly impact on the cost to the individual and also their perception of the benefit.

Is it a green car?

There are numerous vehicles that are being developed. In order for a car to be a low emissions car, it would need to be below 50grams/KM CO2, these vehicle’s will attract a tax charge of 5% of the list price as compared to typical ranges of 20-36%. On the same £30,000 illustration as above, the benefit if it were a green car would be £1,500 as compared to £8,400. This would be a difference of £2,760 to the same 40% tax payer.

In certain cases, such as employees who perform significant business mileage, the tax cost would still be lower than the potential reduction in value and running costs, if they owned the car themselves. However, in a large proportion of cases this is no longer the case and the alternative above should therefore be considered.

There are also car allowances which may be beneficial. The allowance element would be taxed as if it was salary. However, this would allow the individual to claim up to 45p per mile for the first 10,000 miles and 25p thereafter.

The considerations of the type of vehicle will ultimately be led by the employee and the company, however, as highlighted there are significant savings that could be achieved for the employee and the benefit enhanced depending on which route is taken.
Note: All rates above based on the 2015/16 tax year.