Like many enterprises, the question of leasing through the company or a car allowance, is one which is being raised more often.
Much of this has come about because HMRC have continued to increase the Benefit in Kind (BiK) bands which apply to company car users.
When you are offered a company car, you need to know a number of key points which will help you to understand the taxation exposure, including:
· P11d of the vehicle – every new car you can procure will show you this value. This is the list price (including Vat) plus any additional extras (factory or dealer) and delivery. It does not include the first registration fee or VED. The more expensive the car, the more expensive the P11d. One point to consider, is that a more expensive car (from a P11d viewpoint) may not always not be the most expensive from a rental perspective;
· CO2 of the vehicle – every new car will display a CO2 figure shown as “grams per kilometre” (g/km). The more polluting the vehicle, the more expensive the taxation will be. This is because HMRC set BiK percentage bans which range from 2% to 37%.
For example, in 2017-2018 a car emitting 50g of CO2 or less would have a BiK rate of 5% BUT in 2020-21 this would be 14%.
More higher performance vehicles are likely to increase in CO2 under the WLTP testing and so will make these vehicles sit in the higher BiK rates.
· Your personal taxation threshold – as part of your calculations you also need to know you own income tax levels. Are you a 20/40/45% tax payer? The higher your salary, the more income tax you pay. This also will influence the level of company car tax you will pay.
What is perhaps complicating some of the above is the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). This applied for any new cars from September 2017 with a view that it would apply to all new car registrations from September 2018. Essentially, to improve the quality of testing conditions, the new tests will add certain improvements including:
· More realistic driving behaviour;
· Higher average speeds;
· Long distance test;
· A greater range of driving situations;
· Short-stops; and
· Stricter measurement conditions.
With the new WLTP conditions, we are likely to see vehicles producing more CO2. This is therefore going to increase the level of BiK for company car users.
When customers are researching a new car, this might create a situation where they need to consider 1) an electric/PHEV style vehicle; or 2) a car allowance. Obviously this will all be subject to driving style, budgets and the fleet policy.
The key for any company car driver is to research your taxation position first.
Do not be persuaded simply by a cheap rental, as this might not be the best solution for you moving forwards.
Read more car leasing help and advice or check out some of our recent business lease car reviews below.