Claiming company cars

by | Aug 6, 2021 | Business, Tax

As perks go, the company car is one of the most convenient benefits you can offer, giving employees a way of getting from A to B during the working day as well as in their personal lives.

It often comes at a high tax cost, however, and that’s only increasing as low-carbon initiatives roll out – with the exception of electric cars, which come with tax incentives.

In most cases, it’s still possible to deduct at least some of the value of your car from your profits before you pay tax, but the amount that qualifies will depend on when you bought the car, and what its carbon emissions are.

Claiming tax relief on a company car

Cars that you buy and use in your business can qualify for a type of capital allowance, meaning you’re able to deduct part of the value from your profits before tax.

They don’t qualify for the annual investment allowance, however, so you should use writing-down allowances to work out what you can claim.

For the purposes of capital allowances, a car is a type of vehicle that is suitable for private use, that most people use privately, and that was not built for transporting goods.

A motorhome might count as a car, for example, but a heavy goods vehicle wouldn’t.

Alternatively, you can use your own vehicle for business purposes, and claim simplified mileage expenses instead.

Allowance rates for company cars

The following rules apply as of April 2021 – if you’re working out allowances for a car you bought before that date, you’ll need to check the Government website or talk to us about what you can claim.

For new and unused cars that are electric or have CO2 emissions of 0g/km, you can use first-year allowances. These allow you to deduct the full cost of the car before tax.

If your car is new and unused, with CO2 emissions between 1g/km and 50g/km, you can claim main-rate allowances of 18%. The same goes for second hand cars that have CO2 emissions between 1g/km and 50g/km or are electric.

For any cars, new or second hand, that have CO2 emissions above 50g/km, you can claim special-rate allowances at a rate of 6%.

Should you get an electric vehicle as a company car?

Looking at the above rules, electric cars have a clear advantage, with a full deduction if they’re new and a main-rate deduction if they’re second hand.

There are also tax advantages for both employers and employees when it comes to benefit-in-kind tax rates, as well as Government grants offered through car dealerships that you might be able to take advantage of.

Of course, there are downsides. Charging electric vehicles tends to take longer than refueling, for example, and you’ll need to make sure workers have access to enough charging points throughout the course of their journey.

The up-front cost for electric cars also tends to be higher than their fossil-fuel-based counterparts, so you might need to think about how that balances against the potential tax advantages.

Talk to us about the tax implications of buying a company car.

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