There might be times when the cost of your company car tax takes you up and over your budget. It’s all well and good getting a car on a great discount but if it costs you a fortune in company car tax, is it really worth it?
We have, at times, even advised people to lease privately rather than through their business because the company car tax is so high.
But there are ways around paying so much money in company car tax. In this article, we’re going to look at the exemptions to company car tax, and how to reduce your company car tax.
Company car tax exemptions
Company car tax doesn’t apply to all company cars, there are exemptions.
You are exempt from company car tax if;
- You are a Partner of a Partnership
- A Partner of a Limited Liability Partnership (LLP)
- You are the proprietor of your own business
- Your company car is adapted for mobility reasons
- Your car is not used for personal use
If your company car is used purely for business reasons, then you do not have to pay company car tax. This usually means that the car is left on the business property overnight and at weekends and is only used to travel to meetings, to meet clients etc. Unfortunately, commuting does count as personal use in the eyes of the HMRC.
You also do not have to pay company car tax if your car is a ‘pool’ car. This means it is shared by employees for business reasons, such as travelling to meetings or training days. This is also kept on business grounds until it is needed. All you have to do in this instance is tell the HMRC that it is a ‘pool’ car. You still can’t drive it home or use it for private use, however.
Are vans exempt from company car tax?
The rules are pretty much the same for vans as they are for cars. However, there are a few more exemptions.
You are exempt if your van is used only for business journeys or as a pool van. This is where it differs to cars. A business journey includes;
- Travelling to appointments
- To a temporary workplace
Plus, ‘insignificant’ private journeys are also exempt. This means small detours to ‘pick up a newspaper on the way to work’ or to get coffee are also exempt under the company car tax rules. For more information on company car tax for vans, read our article here.
Are electric cars exempt from company car tax?
No, but you will be paying very little. Until April 2017, of course.
Currently (December 2016), cars that emit less than 99g/km of CO2 are subject to 7% BIK rate. However, it was announced in the Autumn Statement that there would be more BIK rate bandings introduced, and a majority of them would apply to low emission cars.
As of April 2017, electric cars will be subject to 9% company car tax.
They will, however, be exempt from the salary sacrifice changes. These changes will change the way salary sacrifice schemes are taxed. Instead of enjoying the tax reductions they enjoy now, salary sacrifice schemes will be taxed the same as if they were the cash equivalent. The exemption to this is if your car is an ultra-low emission vehicle (ULEV). A ULEV is a vehicle that emits 75g/km or less of CO2. These will be taxed under the current BIK rate system.
How can I reduce my company car tax?
If you don’t qualify for an exemption, you might now be wondering how you can reduce company car tax.
One of the easiest ways you can reduce your company car tax would be to get a low-emission car right now before the car tax changes come into play. But, if that’s not an option, what else can you do?
Company car tax is calculated on the following;
- How much CO2 your car emits
- The P11d value of the car
- Your tax bracket
One of those things you have no control over but the other two you do. To reduce your company car tax you need to get a car that has a low P11d value and emits a low amount of CO2.
What is the P11d value?
The P11d value of a car is:
- The manufacturer’s list price including factory options
- Number plates and any other cost options
So if your car has a high P11d value, then you will end up paying more company car tax.
How can I reduce the P11d value?
There are ways to reduce the P11d value and that’s simply to get a car that costs less. If you don’t want to compromise on the model, then reducing the amount of additional extras will bring the P11d value down. But, if you seriously want to save on company car tax then the lower the P11d value, the better.
Some cars with low P11d values that will make good company cars include;
The second factor in determining how much company car tax you pay is how much CO2 your car emits. This is pretty much the main factor in calculating your company car tax. The main way you can lower your company car tax is to get a low-emission vehicle.
As mentioned, there are changes to company car tax which means from next year you will not be able to get a company car that is completely exempt but you can still save a lot of money on company car tax if you got a low-emission vehicle.
If you want super low company car tax, then you want to go for an electric car. These are zero-emissions and will be taxed at 2%. However, this isn’t a viable for everyone, so the next best thing would be cars that emit between 1g/km and 50g/km. The amount these cars will be taxed will be between 2% and 14% depending on how many zero-emission miles the vehicle can travel.
So, another great way to reduce your company car tax would be to invest in a low-emission car. One of the reasons for these company car tax changes is because low-emission cars are becoming so popular so looking for a car with low-emissions isn’t half as difficult as it used to be. There is a low-emission car for everyone, from city cars to executive saloons to vans. Here are a few cars you might want to have a look at:
In a perfect world, you would find a car with the lowest P11d value and the lowest CO2. At the time of writing, there are very few vehicles with less than 75 CO2 which are less than £30,000 to buy. So, at the moment, the best SUV mix would be a Dacia Sandero Stepway 1.5 dCi, Peugeot 2008 1. BlueHDi Access or a Renault Captur 1.5dci
However, this is changing all the time, so we would recommend using the search function to see the latest available. If you are open minded, select less than 99C CO2 and body style and seeing what your options are.
Hopefully this has given you an idea of the ways you can reduce your company car tax. These cars are correct at the time of writing and if you are unsure, you can use our search function on our website.