Tax Benefits of a Company Car

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Tax Benefits of a Company Car

Given the fact that we’ve all been through a difficult economic recession in recent years, the business world remains open to any initiatives that can save money. Company owners, CEOs and directors are constantly on the lookout for ways to reduce spending without compromising on the quality of the goods and services that are offered to customers. This balancing act is never an easy one, even for firms which have managed to stay successful.


While some companies have changed the way they provide cars for individual employees, sometimes removing this alleged ‘perk’ altogether, there are still plenty which need, or indeed want, to offer vehicles to staff members. Given the fact that such a benefit can have severe tax implications, it’s perhaps not surprising that business specialists are always looking for ways to avoid unnecessary tax issues in this area which could be avoided.

Leasing a car is often seen, particularly to the business world, as a far superior option to outright buying. It should be pointed out, however, that this may lead to complicated tax issues which need to be dealt with. As is always the case, every decision-maker should look online for the most up to the minute guidance in a bid to keep expenditure to the barest of minimums. The Internet is an enormous information resource, so it makes sense to utilise it.

Make your future budgeting far simpler

One of the major benefits of leasing a car, or indeed a fleet of vehicles, is the fact that future budgeting can be made far simpler. No business, irrespective of which industry sector in which it’s operating, likes to receive sudden, unexpected bills, so a fixed agreement over a set period of time and containing specific, regular payments can be something of a godsend. Planning is everything in commerce, so the fewer the shocks the better life can always be.


There are ways to ensure the tax burden on an individual employee (and on the company itself) is kept to a minimum. Those workers who earn less than a certain annual income limit (currently £8,500) will not be liable to extra tax, and if the vehicle is a pool car no tax will be due. Similarly, if the car in question has low emissions figures, the subsequent tax bill will be lower. To use an example, if a car emits 195gm of CO2 per km, the tax figure will be 30%.

In keeping with the push towards greener motoring, there are lower tax bills for companies which buy cars that use alternative fuel sources. Electric vans and cars incur no extra tax whatsoever, so if your company is looking at cars in the coming years, it would make sense to consider electric versions if it’s at all practical. For those vehicles which cover great distances, however, it might make sense to look closer at hybrids at the moment instead.

Constantly evolving laws can make decisions difficult

Two factors that used to be important when calculating tax no longer apply. Those cars which had higher mileage figures per annum no longer require more taxation than others, and the age of the vehicle itself isn’t an issue any more. These factors highlight the realisation that company car taxation laws are constantly evolving, so you should never assume that last year’s restrictions are still the same today. Always be ready for change.

If an individual is planning to use a company car privately on a regular basis, thereby almost making it his or her own vehicle, it might be worthwhile paying something towards the cost price. This figure can then be offset against the future tax burden, making the following years more affordable for the employee. It should be noted that the tax burden is also reduced if the vehicle is to be shared on a regular basis with another employee of the same company.

Remember the all-important VAT issue

If the firm which buys the car is VAT-registered, it’s possible to claim back the VAT on outright purchases and, significantly, on part of the tax cost if leasing. These days, cash-flow is everything, and financial managers will be glad to know that a low deposit is usually required when taking out a contract lease on a car. These two factors combine to make leasing an extremely attractive proposition, particularly in the current economic climate.


While many employees will be extremely happy to be offered a company car as part of their salary package, some will potentially be better off if they say no. There are certain companies which will offer staff members a higher salary if they don’t take the vehicle option, and some employees might be financially better off over the course of a year if they use their own car and claim back a mileage-based expense instead.

As always with such complex cases, it’s best to carry out some calculations first before making a decision. Whether you’re an employer looking to keep costs to a minimumor you’re an employee trying to see which options are best, you need to do a little homework before saying yay or nay. Selecting the wrong option at the wrong time could prove to have severe financial consequences over the ensuing months and years.

It perhaps goes without saying that the best source of news on this issue is the web. There are several exceptionally useful online sources which can help you to see through the clouds of doubt, so be prepared to spend a little time on the Internet to find out more. Even accomplished tax specialists know there are times when the grey areas can make it hard to know which road is the best to take, so all research avenues need to be explored every time.

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