Company Cars and Fuel

Company Cars and Fuel

In this article we will be discussing the benefits and limitations of a Limited company purchasing a car in the businesses name, and we will outline in which situations it would be most beneficial for taxation purposes and in which situations there would be drawbacks.

As an employer providing company cars and fuel to your employees, you have certain National Insurance and reporting obligations. We will firstly discuss the exempt scenarios, in which you will not be required to report or pay anything to HM Revenue and Customs. These are as follows;

  • If the car is used solely for business use;
    If the use of the vehicle is part of the employee’s duties, for example a service engineer travelling to an appointment or an employee travelling to a temporary workplace.
  • If the employee who the car is provided to earns less than £8,500 yearly.
  • If the employee pays the employer back for fuel that was used during the tax year. You can find the advisory rates here.
  • Cars that have been adapted for employees with a disability,
    If the private use is only for travel to and from work and also travel to work-related training.
  • If the car is a ‘Pool’ car,
    To be classed as a pool car it must meet all five of the following scenarios according to HMRC’s guidance EIM23450,
    1. it was made available to, and actually used by, more than one of those employees
    2. it was made available, in the case of each of those employees, by the reason of the employee’s employment
    3. it was not ordinarily used by one of the employees to the exclusion of the others
    4. in the case of each of those employee’s, any private use of it made by the employee was merely incidental to the employee’s other use of it in that year, and
    5. it was not normally kept overnight on or in the vicinity of any residential premises where any of the employees were residing, except while being kept overnight on premises occupied by the person making it available to them.

All of the scenarios stated above will not require you to pay any additional tax to HMRC and you will not have to report the car usage to HMRC.

 

If these scenarios are not met, and the car is also used for private use, then you must report the car, business and private use to HMRC and will be required to pay National Insurance Contributions class 1A. The following forms must be filed;

  • If your employee earns more than £8,500 a year or if they are a company director, you’ll need to report this separately by sending a P46(Car) form to HMRC.
  • In addition to this you will be required to send a P11D and pay National Insurance Class 1A.

You can work out the value of cars and fuel using online tools from HM Revenue and Customs (HMRC) or your payroll software.

Accounting for Corporation Tax

If a company purchases a car used for the business, you can claim capital allowances on it. The rate you claim depends on the CO2 emissions of your car and the date which it was purchased.

What does not count as a car?

The following do not count as cars as you are able to claim annual investment allowance on them:

 

  • Motorcycles – apart from those brought before 6th April 2009
  • Lorries, vans and trucks.

Cars bought from April 2015

 

Description of car What you can claim
New and unused, CO2 emissions are 75g/km or less (or the car is electric) First year allowances
New and unused, CO2 emissions are between 75g/km and 130g/km Main rate allowances
Second hand, CO2 emissions are 130g/km or less (or car is electric) Main rate allowances
New or second hand, CO2 emissions are above 130g/km Special rate allowances

 

 

Cars bought between April 2013 and April 2015

 

Description of car What you can claim
New and unused, CO2 emissions are 95g/km or less (or the car is electric) First year allowances
New and unused, CO2 emissions are between 95g/km and 130g/km Main rate allowances
Second hand, CO2 emissions are 130g/km or less (or car is electric) Main rate allowances
New or second hand, CO2 emissions are above 130g/km Special rate allowances

Cars bought between April 2009 and April 2013

Description of car What you can claim
New and unused, CO2 emissions are 110g/km or less (or the car is electric) First year allowances
New and unused, CO2 emissions are between 110g/km and 130g/km Main rate allowances
Second hand, CO2 emissions are 160g/km or less (or car is electric) Main rate allowances
New or second hand, CO2 emissions are above 160g/km Special rate allowances

The balance of any cars bought before April 2009 should be moved to the main rate allowance pool.

 

If your car doesn’t have an emissions figure, use the special rate pool.

Rates before April 2012

Date Main Rate Special Rate
After April 2012 18% 8%
April 2008 – April 2012 20% 10%
Before April 2008 25% N/A

Personal use

If you use a car for personal use, you must calculate the percentage of personal usage and minus this from the total value of the asset before calculating any capital allowances.

For example if you buy and use a car outside of your business half of the time, the amount of capital allowances you can claim is reduced by 50%

Advice on buying a car

 

The most tax effective way for a company to purchase a business car would be to buy a car solely for business use which is kept on the business premises overnight, and that is of emissions lower than 75g/km as you not only are exempt on paying any additional personal tax on the car but also are able to claim 100% first year allowance against corporation tax charges.

The benefits of providing the car as a benefit in kind

If your employee is earning less than their personal allowance, the benefit in kind will not be taxed, therefore enabling the employee to travel to clients without any additional cost to them. Also you will be able to claim capital allowances which means lower corporation tax for the business.

 

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