Smart ways to provide company cars for your team

Company cars are a sought-after benefit that can significantly enhance your employees’ satisfaction. However, with the evolving landscape of taxation, providing this perk has become a complex task. 

At CJ Bookkeeping, we understand the challenges business owners face, and we’re here to guide you through the most tax-efficient ways to offer company cars to your team.

How taxing company cars works

A company car is considered a ‘benefit-in-kind’ (BIK), making it subject to taxation for both employees and employers. Employees must pay tax if they use the car for private and business purposes. Employers are also liable for National Insurance contributions (NICs) based on the car’s value, either by adding the cash equivalent of the benefit to an employee’s salary or using a P11D form.

Understanding the P11D Form

Completing a P11D form by 6 July after the tax year is essential when providing a BIK. For company cars, the P11D value is calculated based on the car’s list price (including VAT), delivery charges (minus registration), and the first year’s car tax. The higher the P11D value, the more tax is due, making it crucial to assess this accurately.

Tax-efficient strategies for company cars

Employee capital contributions

Allow employees to contribute up to £5,000 towards the car’s cost, reducing the list price and lowering the tax liability for both parties.

Consider fuel type, engine size, and emissions:

When calculating tax, factors such as fuel type, engine size, and emissions play a role. Electric vehicles (EVs) often emerge as a tax-efficient choice due to lower emissions and favourable regulations.

Opt for electric vehicles

Buying an electric car for your company offers substantial benefits. You can deduct 100% of the cost through capital allowances, claiming tax relief on the full value within the first year. Additionally, electric cars incur no Class 1A NICs, making them a cost-effective choice.

Advisory Electric Rates (AER)

Stay informed about HMRC’s new method for calculating Advisory Electric Rates (AER). This quarterly calculation considers energy figures and electrical energy consumption values for each EV model, helping you make informed decisions.

Why electric vehicles make sense

With rising energy and fuel costs, electric vehicles provide a greener alternative. Despite the mileage allowance increase to 8p per mile for EVs, the overall benefits, including lower tax liabilities and reduced environmental impact, make them a compelling choice.

Get in touch

Given the intricacies of tax implications, finding the most efficient way to offer BIK to your employees can be challenging. At CJ Bookkeeping, we specialise in working closely with business owners to identify optimal strategies for providing perks to their staff. If you’re navigating the complexities of company car taxation, we’re here to discuss your options and ensure you make informed decisions. For assistance, or if you have any questions, please do get in touch.