Company Vehicles

Should I provide a company car?

A company or other business can provide a vehicle to an employee to use personally – this counts as a benefit in kind for that individual.  If fuel is provided for this vehicle, for personal use then that will be a separate benefit in kind.

The employee will pay tax on these benefits in kind annually but there is no employees national  insurance due, so such benefits can be a good way of rewarding employees tax efficiently.

The company pays all the costs of this vehicle – from purchase to cleaning, including safety equipment e.g. dash cam, bike helmet.  Also any financing cost of the vehicle e.g. loan interest or lease payments. The company is also liability to employers national insurance on the benefits in kind.  All these costs are tax deductible against company profits.

Depending on what the vehicle is classed as, the benefit in kind value for tax can be very different from the costs making some vehicles very tax efficient especially if you own the company, and some not so efficient. So could you benefit?

The value of this taxable benefit

Lorry – nil

Electric Vans – nil

Other Vans – if actually used personally then £3,960 per vehicle ( nil if not actually used)– this can be split between the number of employees with private use of that vehicle – very good value

Van fuel – £757 for fuel ( equivalent to tax on fuel for just 3,000 to 7,000 private miles regardless of actual private mileage) – again usually good value

Cars – variable benefit in kind value based on list price and fuel type  – regardless of use (see below)

Car fuel – nil for electricity but a percentage of £27,800 if any other fuel is provided for private use, even just one tank in the year – equivalent to tax on fuel for maybe  2,300 miles for a hybrid but to up to maybe 50,000 personal miles for a diesel vehicle! – so not a good idea – better to repay the fuel for any private journeys – must be repaid by 7^th July.

Bicycles – nil if mainly used for business journeys e.g. commuting

Other vehicles – e.g. motor bikes – same as for boats, helicopters etc – private use apportionment of actual running costs including Vat and  20% of purchase cost

Car or Van

A car is a mechanically propelled road vehicle,  except

• A goods vehicle e.g. Lorry or van
• A motorcycle
• An invalid carriage
• A vehicle not commonly used as a private vehicle or unsuitable for such e.g. Grand Prix racing car

A van is a mechanically propelled road vehicle primarily designed to carry goods,  with a design weight of less than 3,500kg – i.e. no back windows

Double cab pickups follow VAT rules i.e. if payload exceeds 1,000kg then it counts as a van.

Car Benefit in Kind values

Electric cars – 2% of list price ( rising by 1% per annum from 2025) – very good value

Hybrid cars ( under 50 CO2) – 2%-14% of list price depending on electric range – still good

Classic cars ( over 15 years old with market value of over list price and over £15,000) – % of market value based on CO2 or cc

Other cars – 15%-37% of list price depending on CO2

Do ask for details for your specific vehicle or use HMRC calculator

Company Tax Deductions

A goods vehicle, bike or new electric car qualifies for immediate full tax relief, by deduction from company profits in the year of purchase. This enhances the benefit of putting these cars through your company.

However other cars do not – they only get a tax deduction for the purchase price in small increments over the remaining life of the company – 18% if CO2 is less than 50g/km, 6% if above.  Hence high value non electric cars may take years to get full tax relief – unless you plan to close your company soon.

Remember if the vehicle is a company vehicle then when sold, or subject to an insurance claim, then the proceeds are company income subject to tax.

The effect is that you get full tax relief for the reduction in value of the vehicle while in the company, but that tax deduction is immediate for some cars and for others can continue well after their sale.

Vehicle expenses for a Sole-trader or Partnership

A business proving a company car to an employee may be a sole trader or partnership.  However there are different rules for the business owners i.e. that sole trader or those business partners.

If the business is a limited company then the same above rules apply for all employees, including directors and business owners.

The general rule for sole trader and partnership accounts is that you can claim reasonable actual business expenses.

When this comes to vehicles we should apportion actual costs between business and personal use of that vehicle. The approved way of doing this split is by using mileage – either over the whole period or a sample period. A general percentage split has been accepted in the past, but if you have a tax enquiry then HMRC can ask for records to be kept for a sample period to support the split.

The downside is that all actual costs need to be recorded, as well as all the mileage, but when you have a business bank account from which you pay all the vehicle costs then recording all costs should not be a problem, and you can pick up total mileage from the Vehicle mileometer (if you remember to read it) or the MOT certificate.

This means all the work is in recording either business or personal milage in order to effect the split – a record of business mileage is officially what is expected and is called a mileage log.

In 2013, HMRC introduced simplified expenses as an available alternative to using actual costs for claiming some expenses including vehicle expenses that could be claimed at 45p per business mile. This is the same rate as was already available for employees and has not changed since 2011. This rate is across all vehicle and fuel types and was introduced to encourage use of more economical vehicles. However as it has not gone up in 13 years then it can no longer be said to be representative of average costs.

For each vehicle used for business you can choose one of the above two options, actual cost or simplified expenses, for the life of that vehicle.

Purchase cost

The mileage rate is inclusive of all  vehicle expenses, so no other vehicle costs may be claimed with simplified expenses. Actual costs includes the purchase of the vehicle, and all accessories, apportioned as for running costs, however there can be special rules for the timing of the tax relief on the purchase price.

When the vehicle is a bike, new electric car, van or other commercial vehicle, then the actual costs option has the additional benefit of getting tax relief up front for the total cost of that vehicle – however there is a downside in that when the vehicle is eventually sold or the business closes then the remaining value of that vehicle is taxable. This effectively borrows the tax on the value of the vehicle from the taxman for the life of the vehicle as a business asset, and as the value of the vehicle reduces so the loan balance repayable to HMRC reduces. As most vehicles deprecate then this is a nice early bonus for a new business.

Other cars do not get that full tax deduction up front– they only get a tax deduction for the purchase price in small increments until the vehicle is sold – 18% if CO2 is less than 50g/km, 6% if above. Hence high value non electric cars may take years to get full tax relief.

Remember if the vehicle is a business vehicle then when sold, or subject to an insurance claim, then the proceeds are business income so subject to tax, on the business portion.

VAT

If your business is VAT registered then

• VAT may be reclaimed on the purchase of a new vehicle, unless it is a car (exceptions apply)
• VAT may also be recoverable on some second hand vehicles ( those with a VAT history).
• VAT is reclaimable on all running costs where VAT is incurred.
• A sole trader or partnership may choose to claim the VAT on fuel for the owners vehicle and pay a private use VAT charge or not claim
• VAT may be claimed on all fuel for an employees vehicle
• There are special rules for VAT on sale and insurance claims