The company gives an employee a car for both work-related and personal travel also called fleet car. It might serve as an alluring incentive to recruit new staff members to your company. However, not everyone finds a fleet automobile the most economical choice. Few calculations shows the numbers add up for your situation before you begin looking through your company’s car list. This guide to company car tax can help you understand the system and get the best fleet automobile at the best price.
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What is Company Car Tax
Companies impose a tax on workers in exchange for company-provided vehicles, known as company car tax or a benefit in kind. The tax authorities evaluate the car’s CO2 emissions or list price, whichever is higher, to determine the tax. As a result, companies suggest choosing more affordable and friendly automobiles, with low-emission to lower taxes than those with high emissions.
Although employer pays the tax on the worker’s behalf, the worker ultimately bears the expense because the employer decreases their compensation. HMRC uses the BIK to determine your company car tax and impose it such as 0, 20, 40 and 45%.
How Company Car Tax Works
To put it briefly, benefit in kind (BiK) is the car that company give to the worker. BiK are benefits that are not directly added to your pay and are not even considered a taxable income. This implies that PAYE (Pay As You Earn) is used to pay the tax on your corporate vehicle from yor pay cheque.
Naturally, you are not require to pay taxes on the whole cost of automobile, which is told in aforementioned considerations. To clarify how company car tax operates, this article will first go into greater detail about each of these criteria with examples.
How to Calculate Company Car Tax
Once you have these numbers, you may calculate your tax liability using the HMRC company car tax calculator.
An illustration of the calculation of company car tax:
You may exclude some of the seven factors considered for the computations:
- List price
- Capital contributions
- CO2 – BiK rate
- Car availability
- Employee payments for private use
- Modifications if the vehicle is share
- Your income tax bracket
Suppose you wish to purchase a Tesla Y for your business. Before performing the calculations, we will make a list of the pertinent data and then have a calculation:
For example:
Price is: £53,000
Capital contributions to it are: Now subtract your down payment:
£53,000 – £5,000 = £48,000
CO2 – BiK rate: Multiply that with the BiK rate:
£48,000 × 2% = £960
Car availability: You had access to the car after 100 days which is 73%.
£960 × 73% = £701
Employee payments for private use: You contributed £500.
£701 – £500 = £201
Modifications as a car sharer: N/A
Your income tax bracket: the benefits matches your tax bracket are subject to taxation: £201 ×20% = £40.2
Your annual tax liability in this scenario would be £40.2.
Your down payment has less impact on your tax burden with a BiK rate of, say, 30% because it is low for electric automobiles. In this instance, if your company had paid the entire £53,000 cost of the car, you would have paid £54.8 annually. Its understood that how emissions affect your company car tax.
Calculation will result in £1,484 taxes for a Nissan Qashqai:
- a list price of £40,000
- CO2 emissions of 143 g per km (BiK rate of 31%),
- even if your contributions to the vehicle were the same as for the electric vehicle.
How to Find Company Car Tax on Payslip
Fewer individuals in your monthly pay covers the company car tax you are liable for as an additional line. The figure will differ depending on the size and kind of business vehicle you have. You should ask your employer about how much tax is on your payslip.
How to Reduce Company Car Tax
The government sets company car tax, which is based on the type of car, emissions, and your income tax band. If you already drive a company car, you most likely can’t reduce the amount you pay. But if you haven’t chosen a company car yet, here are a few things to keep in mind:
If you have the option to decide, opt for one that is cheaper or one that produces lower emissions. Electric cars are a great option for paying less tax. If you don’t use your car on a full-time basis, you won’t be taxed as much. If you don’t require the car on a full-time basis, discuss your options with your employer.
Conclusion
Although it is a big expense, you can save money by knowing how company car tax operates. You can reduce your tax bill by opting for less environmentally damaging vehicles, considering your income tax band. If you are not sure, it is usually a good idea to speak to your employer about your options.
Get in touch with our young, clever, and tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK for your income. We will ensure to offer the best services.