Many property investors now operate a limited company, and many have spare funds in the company that could be used to fund a company car – or, who would naturally prefer to run their car via the company if tax-efficient to do so – which, at present it almost always isn’t. From April 2020, there will be a radical change to the electric company car regime that will mean electric company cars will become very tax-efficient – this article looks at why.
Recap – why are company cars not usually tax-efficient?
The company car tax regime taxes BOTH the employee AND employer company on the provision by the company of a company car. The amount of tax payable is based on the ‘car benefit’, calculated as List Price multiplied by a % based on the CO2 emissions of the car.
e.g. 2019 tax year: Ford Mondeo, list price £27,815, CO2 emissions 107g/km = taxable benefit % of 22% = £6,119.
The employee/director is then taxed on £6,119 of car benefit, at whatever rate of tax applies for that person (e.g. £2,447 for a Higher Rate taxpayer).
What hurts is that the tax is calculated on the list price (brand new), so as the car gets older the tax doesn’t reduce. Also, in the example above, the % rate is increasing from 22%, to 25% (2020 tax year), to 26% (2021 tax year) etc. There is also a 4% extra charge for diesel cars. And, the cost of company-supplied fuel is hugely prohibitive as a ‘scale charge’ is applied – meaning that however much fuel is actually used, the company car driver is taxed as having received a benefit of c.£22k.
Although the tax regime is more favourable currently for electric & hybrid cars, there still isn’t much of a tax benefit in having such a company car e.g. the 2018 tax year car benefit for a Mitsubishi Outlander PHEV is 9%, but this is set to increase to 13% in 2019, and 16% in 2020.