In the past company cars have been taxed heavily, making them unattractive for most business owners.
With the low company car tax rates of electric cars, and some hybrids, this is now a good time to consider whether a company car may be right for you and your business.
In this article, we will look at three scenarios, an electric company car, diesel company car and a hybrid company car, and whether it is best to own personally or through the company.
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06/04/2022 – 05/04/2023 |
Electric Car BMW i4 |
BMW 3 Series Petrol Hybrid |
BMW 3 Series Diesel |
|
Purchase price |
£55,000 |
£48,000 |
£45,000 |
|
Benefit in Kind rate |
2% |
12% |
32% |
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Company Car – per year |
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BIK tax at 20% |
£220 |
£1,152 |
£2,880 |
|
Employer’s NI at 15.05% |
£165 |
£867 |
£2,167 |
|
Corporation Tax saved* |
£2,620 |
£1,806 |
£925 |
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Total tax cost/(saving) |
£(2,235) |
£213 |
£4,122 |
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If car owned personally – per year |
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Dividend tax (33.75%) to purchase car** |
£4,640 |
£4,050 |
£3,797 |
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Company car total cost per annum for 4 years |
£11,515 |
£12,213 |
£15,372 |
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Personal car total cost per annum for 4 years |
£18,390 |
£16,050 |
£15,047 |
*Depending on whether the car was purchased or financed would depend on when the corporation tax would be saved. For this example we have assumed the car would be owned for 4 years, and averaged the corporation tax saving over those 4 years.
**Depending on whether the car was purchased or financed would depend on when the extra funds from the business would be required, and the dividend to cover those funds. For this example we have averaged this over 4 years.
The Results
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The cheapest option is the electric car owned through the business, even though this is actually the most expensive car to purchase.
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It is often the case that electric cars are more expensive than their hybrid or diesel equivalents, but the tax saving brings the overall cost lower than a hybrid or diesel.
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If you cannot have an electric car, then the petrol hybrid is a good option to own in the company.
Other Factors to Consider
The above is for illustration purposes only, there are many other factors that can affect the benefits of owning a car through a company or personally. Some of the other factors to consider are:
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If the car is being purchased outright, using hire purchase or being leased
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The running costs of the car are the company’s responsibility such as insurance and maintenance, there are greater tax savings there.
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Having a benefit in kind will likely be taxed at the basic rate of 20%, however this could push dividends you are drawing from the company into higher rates.
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Currently the company can pay for the installation of a charging unit at your home.
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The company car tax rates are likely to change in the future.
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Corporation tax rates are set to increase from April 2023, if they do there will be a greater corporation tax saving.
