In recent years up until the beginning of April 2020, having a company car wasn’t as great of a benefit as it may have seemed.
Yes, you could have an all expenses paid company car through your company/employer as a perk, but there was a caveat, you were liable to pay Benefit in Kind (BiK).
In a lot of cases, the amount of benefit in kind being paid actually made it more cost effective to run a vehicle privately and therefore company fleets diminished, and employee car allowances became more popular.
To work out what was more suitable, we need to look at how Benefit in Kind is calculated.
Using three pieces of information, the P11D value of the vehicle, the company car taxable rate (a percentage based off CO2 emissions), and your income tax band, we can calculate how much you would be liable to pay.
This means that the Benefit in Kind that you pay would be higher if you:
- Have a more expensive car
- Have higher CO2 emitting car
- Are a higher rate tax payer
“So what changed in April 2020?” I hear you ask. Well, the government changed the company car Benefit in Kind rates to 0% on electric cars that emitted zero tailpipe emissions.
This meant that electric cars attracted zero Benefit in Kind and therefore removed the additional cost.
What makes it even better, is that running a car through a company potentially offers additional tax savings to the company, in the form of VAT and capital allowances.
This tax year, the taxable rate on electric cars moved up to 1% and it will move to 2% next tax year, where it will stay for 3 years.
This is still a huge distance away from the common 37% band that a lot of petrol and diesel vehicles are in.
So, it’s safe to say that the company car is back, albeit electric.