Are you providing company cars to your employees or using one for business purposes? It’s crucial to understand the tax implications involved. Here’s a breakdown of the key points you need to know:
1) Benefit-in-Kind (BIK) Tax: Company cars are considered a benefit-in-kind, which means employees are taxed on the value of the benefit they receive. The BIK rate depends on factors like the car’s CO2 emissions and its list price.
2) CO2 Emissions: Lower emissions mean lower BIK rates. Electric and hybrid cars often have significantly reduced tax rates, making them a more tax-efficient option. For example:
0g/km CO2 emissions: 2% BIK rate
1-50g/km CO2 emissions: 5-12% BIK rate, depending on electric range
Over 50g/km CO2 emissions: 15% and above BIK rate, increasing with higher emissions
3) Private Usage: If a company car is used for private purposes, including commuting, this increases the taxable benefit for the employee. Ensure you accurately report private usage to HMRC.
4) Business Purposes Only: If a company car is used exclusively for business purposes, there is no taxable benefit for the employee. However, strict criteria must be met, including no private use (including commuting), and the car must be available to multiple employees as a pool car. Documentation is essential to demonstrate compliance.
5) Employee Contributions: If an employee contributes to the cost of the car, this can reduce the taxable value of the benefit. Ensure these contributions are properly documented.
6) Fuel Benefits: Providing fuel for personal use is also a taxable benefit. Employees will need to pay tax on the value of this benefit, which is calculated based on the car’s CO2 emissions and a set multiplier (£27,800 for 2024/25).
7) Pool Cars: Cars that are only used for business purposes and are available to multiple employees can be classified as pool cars, which are not subject to BIK tax. Strict rules apply to ensure these cars qualify.
8) Record Keeping: Maintain accurate records of car usage, CO2 emissions, list prices, and any employee contributions. This documentation is essential for accurate tax reporting and compliance.
We at Bowdon Accounting Services are committed to providing you with timely, clear, and strategic accounting support. If you would like to schedule a discovery call to explore this further, you can book a time that suits you via this link: https://zcal.co/i/fSLS0r60
Discover more about how we can support your business by visiting our website at www.bowdonaccounting.com.
