Is it worth having a company car?

We look at whether having a company car is still worth it...

Company cars have always been popular. They are a great incentive and a great way to attract the best candidates for your company.

But with the increasing changes on company car tax and the government crack down on diesel cars, is it still worth having a company car?
In this article, we look at whether a company car is still worth it, and your alternatives.

What are the advantages of having a company car?

There are quite a few advantages to having a company car. For example;

  • It’s a great incentive
    • Our own research has shown that a company car attracts the best candidates for your company. A company car boosts morale and works as a good incentive to attract, and keep, the very best.
  • You could end up driving a nicer car for less money
    • There are a lot of discounts to be found with brands such as Mercedes, Audi and BMW. This means that you could end up having a better car than you might have originally thought
business woman wearing a suit getting out of a blue car
  • There are more deals to be had with business leasing
    • This means it could end up cheaper to lease through your business than to lease privately.
  • There are business benefits to leasing
    • These include claiming 50-100% of the VAT back and the finance being “off balance sheet” but we’ll go into more detail later on in the article

 

So there are a few of the advantages of having a company car.

What are the disadvantages of having a company car?

However, there are also disadvantages of having a company car.

what are my cancellation rights
  • Company car tax
    • Possibly the biggest disadvantage of having a company car is that you will most likely have to pay company car tax
    • We will go into more detail later on in the article
  • There will be some cars that are considerably more expensive
    • Due to company car tax, there could be cars that cost considerably more to lease through your business than they would personally. So, it isn’t always viable.
  • There is an increased liability
    • If your employees are using their company car for personal use, then you are liable for accidents pretty much round the clock. This increases risk for you.
  • You will have to track personal use closely
    • We will go into this in more detail later on in the article. But, if your company cars are to be used for personal journeys then you will have to track this.

As you can see, there are advantages and disadvantages of having a company car.

How does company car tax work?

You will have to pay company car tax if you use your car for personal journeys. This includes travelling to and from work.

How much you will pay in company car tax is determined by the following;

  • Your personal tax band
  • The P11d value of the car
  • The CO2 emissions

 

The lower the P11d value of the car and the lower the CO2 emissions, the lower your company car tax will be.

What is the P11d value?

The P11d value is how much the car is worth after all other costs have been added. This includes;

  • The makers list price
  • The delivery charge
  • Any other options you wanted added – such as a sat-nav or privacy glass
  • The VAT
what happens if my lease car is in an accident

You can work out how much you will be paying in company car tax.

Company car tax changes 2017

As of April 2017, there were some changes to company car tax. Essentially, more bands were introduced at the lower end of the BIK scale.

The previous BIK rates were introduced in 2002, where there were little environmentally friendly cars on the roads. To encourage businesses to invest in low emission cars, the government ensured that the BIK rates were considerably lower for environmentally friendly cars.

This worked and was very successful at getting businesses to look at more efficient and eco-friendly cars for their fleet. However, it worked a little too well, and the government realised that the amount paid in company car tax was getting less and less each year.

Now, we aren’t saying that the government have introduced these changes to get more money, but they have introduced more bands at the lower end of the scale to make things slightly more equal.

This means that if you get a low-emission company car now, you will be paying slightly more in company car tax than if you were to get it before April 2017.

But don’t let that put you off, there is still a good chance that leasing through your business is still a better option than leasing privately.

Business benefits to leasing

As we mentioned above, there are plenty of business benefits to leasing. While the following do not apply to all contract types, these are exclusive to business leasing. They are not available to private individuals.

Tax benefits

When you are leasing your car through a VAT registered company, you can claim 50% VAT back on the monthly payments. When you lease a van, you can claim 100% of the VAT back.

businessman in car

However, there is an exception. The exception is if you use the car for personal use. You cannot claim the VAT back if you use your car for reasons unrelated to work.

You can claim the monthly cost of the lease against profits, though. How much you get to claim back varies. If your car emits more than 160g/km of CO2 then you can claim 85% back. If your car emits less than that, then you can claim 100% back against profits.

A better accounting solution

If you have a business contract hire, then the finance commitments can be “off balance sheet” so the liability of the finance doesn’t appear on company accounts.  

Your cash isn’t wrapped up in a depreciating asset

At the end of a business contract hire, you hand the car back with nothing more to pay (subject to mileage and condition restrictions). This means that you don’t have your cash tied up in a depreciating asset, which is very attractive for businesses.

Which is cheaper; personal leasing or business leasing?

So, is leasing through your business cheaper than it is personal?

It really depends. There may be occasions where leasing privately is more financially viable than leasing through your business.

For example, if you were to lease a car that has a high P11d value and emits a high amount of CO2 then you may be better off leasing privately as you won’t have to pay company car tax.

But, on many occasions it is cheaper to lease through your business. However, we would recommend weighing up both options and discussing both options with your vehicle broker thoroughly so you know that you are making the right decision.

Don’t have a vehicle broker? We can help. Request a call back and one of our vehicle specialists will be in touch shortly to discuss your options.

Is it worth having a company car?

In conclusion, is it worth having a company car?

We are going to say yes. Despite the rise in company car tax, leasing through your business is still cheaper. You also have the business benefits to leasing that you do not get if you lease privately. And these benefits can outweigh the fact that you have to pay company car tax.

Although, there may be a time when it is better to lease privately, if your chosen car emits a lot of CO2 for example. In which case, a company car is not worth it. However, we recommend looking at all of your options and coming to an informed decision as to which one is best for you.

READY TO LEASE YOUR NEW CAR?

Request a call back and one of our specialists will be in touch shortly to discuss your options and help you decide between a personal or business lease.

Holly Martin

Content Co-ordinator at OSV Ltd
Holly enjoys: Reading, music and spending time with friends.

Within a week of Holly starting work at OSV she became an indispensable part of the marketing team. She's very intuitive and gets on with the whole office effortlessly.
Holly Martin

3 Comments

  • Jordan| 18th December 2018 at 10:12 am Reply

    The way I see it, a company car is great if you have the wage left to support a decent living. for example, if your paid £1500 Gross, lose say 300 to tax, another 100 to insurance and 50 to pension, although it is nice having a company car that you pay no maintenance, you quite easily insure a £200 banger for the year to get to work and back and have more money left in your wage. So the way I see it unless you are paid a sum over the company car tax, they aren’t financially viable in my opinion.

    • Rachel Richardson| 11th January 2019 at 9:08 am Reply

      Hi Jordan,
      Thank you for your comment. A company car is a perk that you would receive an allowance for when it comes to mileage. The HMRC has a calculator that will work out what the eligibility for tax would be, you can find that here: HMRC Calculator. Of course it is a personal decision as to whether you take the offer if it is made by your organisation.

  • Don| 14th September 2018 at 10:24 pm Reply

    Company car for me works cheaper. car Insurance, maintenance, road tax all included on the company car. As I chose a hybrid car, it only cost me BIK of £75/month. Using my own car, I would pay all these + mot which is around £700 per year (£58/month). but then you also need to add the depreciation of the car + any unexpected parts/consumables needs replaced i.e tyres, breakpads etc.

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