Company Car or Mileage?
Dafydd Jones, Obp Chartered Accountants | 27th January 2020
Company car or mileage? Deciding whether to have a company car, or to claim mileage, is a regular question I receive from clients and can be a difficult choice for business owners. The most tax efficient choice differs depending on a number of factors.
Tax legislation has changed resulting in fewer instances where it is more beneficial to have a company than using your own car for business travel but there are a few occasions where having a company car is the best option and could save you tax!
This means the business pays for and owns or leases the car that you use but as an individual, you will be taxed for the use of the car. This is known as a benefit in kind. The taxable amount is a percentage of the brand-new list price of the vehicle. Please note it is not the price you might have paid for a used car! The percentage of the list price is dependent on the level of the car’s CO2 emissions. The higher the emissions, the higher the percentage. An expensive car with high fuel emissions means a high personal tax bill. These rates change on a regular basis and reflect the general reduction of CO2 emissions from cars.
Having a company car impacts on other types of taxes, not just personal income tax. The company must pay Class 1A NIC on the benefit in kind, and although having a company car increases your personal tax bill, the cost of the car will count as an expense of the company and reduce the company’s corporation tax bill. The decision needs to be looked at from many different angles to make the best choice.
The most tax efficient way to have a company car is to have a cheap, non-diesel, car with low fuel emissions. The only way of having no personal tax to pay for the use of a company car is if it is exclusively used for business and it is not available for private use. This is very rare as even a journey from home to work counts as private use and the car doesn’t have to be used privately, just simply available for use, to incur a personal tax cost. You can use our company car calculator on our FREE App to work out what ta you will have to pay.
If you choose to claim mileage rather than having a company car, you can claim 45p per business mile for the first 10,000 miles in each tax year. Any additional miles can be claimed at 25p per mile. If you do not trade through a limited company you will be using your own car. If this is the case, you can choose to claim mileage, or alternatively, you can claim the actual cost of the business use of the car. This means if 50% of the miles travelled in the car are for business then you can claim 50% of all car costs as a business expense. You can also claim capital allowances on the business proportion of the car but you cannot switch from one treatment to the other in different years. Claiming the flat rate 45p per mile is slightly simpler, but using the actual cost method can save tax in circumstances where the cost of the business use of the car per mile is more than 45p. You will need to keep a record of the business miles and you can use the mileage tracker on our FREE App to do this.
So, which should I Choose?
Usually, claiming mileage and using a personal car is a better choice than having a company car. It is a much simpler approach as it doesn’t interfere with other taxes and NIC and it usually saves more tax. There are a few instances where a taxpayer could benefit from having a company car for example if the car has a low list price and has very low CO2 emissions or electric.
We can help!
Deciding which method to choose to avoid paying too much tax can get complicated. If you would like help making the decision call us on 02921 676555 or e-mail me on firstname.lastname@example.org