Submitted by Sestini & Co
| on Sat, 12/19/2020 - 19:50 | In Tax planning and pensions
When it comes to company cars, a familiar refrain is that they create more personal tax liability than they save. This is because employees with company cars are liable to pay Benefit in Kind (BiK) tax. It often makes more sense for employees to use their own car and claim back the mileage.
In an effort to get drivers and businesses to invest in low emission company cars, the government offers tax incentives. From April 2020, the government has said there will be zero tax on Benefit in Kind (BIK) during 2020/2021. This zero rate also applies to hybrid vehicles with emissions from 1 – 50g/km and a pure electric range of over 130 miles. These rates would increase to 1% for 2021/22 and 2% for 2022/23 for vehicles registered after 6th April 2020.
Back in March of this year, the Chancellor said that the BiK rates for all cars for the tax years 2023/24 and 2024/25 would remain at the 2022/23 levels.
Understandably, this has increased the popularity of electric cars and switching to an electric car offers many tax benefits for businesses. Because they have low BiK rates, they are a cost-effective option as a company car. This can be particularly beneficial at a time when businesses are facing so much financial uncertainty.
To illustrate how much of a saving your business could make, take a look at the table below which provides a comparison of a VW Tiguan (petrol) and a Tesla Model 3 (electric).
|Purchased as company car|| ||VW||Tesla|
|Purchase/list price|| ||33,925.00||59,990.00|
|Includes VAT:|| ||5,654.17||9,998.33|
|Assume 50% business use – net cost|| ||31,097.92||54,990.83|
|CT deduction|| ||5,908.60||10,448.26|
|Net purchase price|| ||25,189.31||44,542.58|
|Taxable benefit in kind||Car||11,195.00||445.43|
|Income tax (employee)|| ||7,712.00||178.17|
|NIC (employer)|| ||2,660.64||61.47|
|Total cost to employer over 3 years|| ||33,171.23|| 44,726.98|
|Total cost to employee and employer over 3 years|| ||56,307.23|| 45,261.49|
Salary sacrifice car schemes
Electric cars are becoming more popular when using salary sacrifice car schemes. These schemes offer tax savings to both employer and employee on NI contributions and corporation tax. Although the employer still has to pay NI contributions on the car, this will be a lot less than the employer NI contributions that would have been payable on the percentage of the salary sacrificed.
One vehicle leasing company says that more than 45% of all new orders over the past 30 days have been for pure electric vehicles (EVs).
Salary sacrifice schemes are the cheapest way to drive electric without paying a deposit upfront.
If you’ve recently considered getting a company car but aren’t quite sure how it would benefit your business, or would simply like help with tax-related issues, then come and talk to us.
If you’d like to speak to us, give us a call on 01761 241 861 or email us today.
We will be pleased to advise you or to arrange an online call for a consultation.