Company Car versus Private Ownership

Is it better to purchase a car (which will be used for private use) in your company or is it better to own it privately and claim mileage?

The answer is own it privately and claim mileage, in most cases.

If a car is owned by the company and made available to a director/ employee for private use then the director/employee incurs a taxable benefit in kind.

How the Taxable Benefit in Kind (BIK) is calculated

The BIK for the car is calculated by multiplying the list price of the car by the ‘approved percentage’. The approved percentage is based on the cars C02 emissions. The higher the C02 emissions the higher the multiplier !!

For example a 3 series BMW Saloon 316d with a list price of £25,210, with C02 emissions of 118g/km (and therefore a multiplier of 18%) has a BIK taxable value of £4,537.

If fuel for private journeys is provided to the director/employee a further BIK of £3,798 is to be added to the calculation.

HM Revenue & Customs have a useful car benefit calculator which can be found by clicking here.

Cost to the Director/ Employee

So… the total BIK value to the director / employee is £8, 335. What does this actually mean ? It means that the director employee pays tax on the BIK value via the payroll system. HM Revenue & Customs collects this by adjusting the individual’s tax codes (tax free amounts). The adjustments are notified to the tax payer and their employer.

So, based on the example above, if said director/employee is a basic rate tax payer they will pay an extra £1,667 in tax per annum deducted from their salary, this equates to a net deduction from take home pay of £138.92 per month. The figures for higher rate tax payers are £3,334 per annum and £277.83 per month.

Other factors

If the car is owned privately the individual can claim 45p per mile tax free for every business mile driven, up to £10,000 miles per annum, and then 25p per mile thereafter.

So… if an employee drives say 800 business miles per month they can receive £360 tax free as mileage allowance from their employer.

Conclusion

Please see a summary of the advantages/ disadvantages to the employee of accepting a company car:

Advantages:

No maintenance, service, insurance, car tax costs as all paid by the Employer
Loss of income each pay period as the tax relating to the car is collected via the PAYE system (see example above)

Disadvantages:

The company owns the car. If you lose your job you also lose the family vehicle
Mileage allowance (see above) can’t be claimed.

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