Many individuals who are either employees or directors in a company think it would be more tax efficient for the company to buy the car rather than them personally. However, there are tax consequences for the company and the individual to consider and regulations for reporting these to H M Revenue & Customs (“HMRC”).

If an employee or director (including relatives who are not employees) is provided with a company car by a company, sole trader or partnership then this is treated as a benefit in kind (“BIK”). The company will then have a legal obligation to submit a P11d to HMRC reporting this BIK on an annual basis. The P11d must be submitted to HMRC no later than 6 July following the end of the tax year in which the BIK was received. Failure to submit the P11d will result in a penalty of £50, however, if you submit an incorrect P11d this can result in a penalty of up to £3,000.

To calculate the value of the benefit there are certain items that will need to be provided, such as list price, CO2 emissions, engine size, fuel type and whether private fuel is provided.

The amount of CO2 emissions and whether the car fuel is diesel or another type (petrol, electric, and hybrid) determines the rate, which should be applied to the list. The higher the C02 emissions the higher the rate. The rate starts at 13% for other fuel types and 17% for diesel cars up to a maximum of 37%.

The list price of the car is the manufacturers recommended retail price. This is not to be confused with the price of the car when you purchased it. This can have a significant impact on the tax cost of the car when you are looking at acquiring a second hand car.

However, if the car is older than 15 years (Classic car) with a market value of over £15,000 at the end of the tax year in question, then the market value can be substituted for the list price if higher.

Classic Cars and Tax Exemption

There are certain tax breaks for classic cars, you may therefore consider acquiring a classic car rather than one of the newer models.

Clients are finding that some classic cars are one of the best investments they have made as their value has continued to rise in the current economic climate. In addition to the pleasure of owning a classic car they can be quite tax efficient.

If you sell a classic car and the car has increased in value since you acquired it, provided you are not a frequently buying and selling cars the increase in value (the gain) will not be subject to capital gains tax (“CGT”). This is because certain types of assets are CGT free and classic cars are one of them as they are classed as wasting assets (i.e. assets with a life of less than fifty years). However, if the classic car has been used in a business the exemption may not apply.

In addition cars built before 1976 are eligible for historic vehicle class, resulting in their owners being exempt from paying road tax.

Tax on cars, classic or otherwise can be complex and costing in tax terms if not researched properly. At Ellacotts we have a wealth of experience in advising on the tax implications of car ownership and would be delighted to speak to you for further details call Ann Bibby on 01295 250401 or email abibby@ellacotts.co.uk

Tags: UK200

Back to Blogs