Be Wiser’s Guide To Company CarsTue, 24/01/2017
Company cars have traditionally been a coveted perk provided by employers, but with changes to tax bands and appearance of cash allowances as an alternative, the landscape of this benefit has shifted over the years. But is it changing for better or worse, and what do you need to know if your employer is offering you a company car?
Increase In Popularity
The number of employees paying company car tax increased for the first time in ten years in 2014/15. HM Revenue and Customs revealed that the 950,000 motorists paying BIK (Benefits in Kind) tax increased by 1% compared to 940,000 in 2013/14.
Not only are more people taking up the offer of a company car, but the cars they are using are more environmentally friendly than in previous years. In 2012/13, around 91% of company cars emitted less than 165g/km of CO2, which is a 4% increase from the previous year. Only 1% of company cars emitted 225g/km or more.
This is reflected in the What Car? list of most popular company car models, which includes the BMW 3 Series, Audi A3, Volkswagen Golf, Audi A4, and Mercedes-Benz C-Class. The most popular BMW, the 320d Efficient Dynamics, emits 109g of CO2, while among the Audi A3 options is the TDI 110 Ultra SE, which emits just 89g/km.
Now that there are more low-emission cars to choose from than there used to be, companies have a responsibility to offer eco-friendly choices to employees. While a company car is a reflection of the business, the employee, and their status and successes, it is now also a reflection of their environmental responsibility and whether the company prioritises this.
How Does Company Car Tax Work?
Company cars are a type of ‘fringe benefit’ or Benefit in Kind (BIK) provided by an employer. Benefits in Kind are not included in an employee’s salary, and they are viewed as an addition to your income because they are paid for by your employer. This means that if you have a company car, you have to pay tax on it. If a car is supplied to you by your employer and you are able to use it for personal use outside of work, it is considered a taxable benefit.
Different emission level bands are taxed at different percentages of a vehicle’s value, and this is called the P11D value. Electric vehicles and ultra-low emissions vehicles (for example the Nissan Leaf or the Renault Zoe) currently have a 7% or 10% BIK rate as these are the least polluting models, while the highest polluting models have a BIK rate of 37% (from 2016 until 2020). Among the highest polluting cars are the Range Rover Sport, which produces 1,720mg of emissions per km; the Mercedes A180, which produces 1,035mg per km, and the Peugeot 3008, which produces 1,104mg per km.
As well as emissions, tax rates are also based on the car’s official list price, the type of fuel it uses, how and when it is paid for and used, and any optional extras. The government website has a company car tax calculator to help you find out how much tax is on your company car. The tax you pay on your car is taken from your salary each month or week.
BIK Tax Rate Increases
While the current BIK rates are set until 2019/2020, they have been rising in previous years. There was previously no tax on zero-emissions vehicles, until it was introduced at a rate of 5% in April 2015. In 2014/15 the BIK rate on vehicles with emissions of over 220g/km was 35% compared to 37% now.
Company Car or Cash Alternative?
Rather than a company car, some employees and employers opt for a cash allowance or a cash alternative to a company car. This gives employees more freedom to choose any car they want, and the car is theirs to own and keep. However, this does mean they have to organise and pay for the car’s service and maintenance, the monthly allowance is taxable, and if they buy the car on a financial agreement they have to pay for it until the end of the term even if their circumstances change and they leave the company.
Do I Need To Pay for Insurance on My Company Car?
If you drive a car owned and provided by the company you work for, your employer should have covered you for personal and business use – but it’s your responsibility as the employee to check.
However, if you use your own car for business use, you will need to let your insurance company know so that you are covered for every journey you make.
When Is A Car For Business Use?
If your car has been provided for you by your employer, knowing whether or not it’s for commercial use is fairly straightforward. But if you own your car and sometimes use it for work, things can become a little more uncertain.
Generally speaking, if you use your car for your job, for anything other than driving to a single place of work, you may need business car insurance. For example, travelling to different offices, going to meetings or training courses, running errands, and making deliveries may not be covered by a private policy.
There are different levels of business car insurance – if you’re only doing a few miles you may only need class one insurance, but if you and other named drivers are doing more than that you’ll need class two, and if you’re using the car for selling or commercial travel, you’ll need class three.
Business car insurance may cost a little more than a standard policy because if you drive for business you may cover more miles, and drive on roads you are unfamiliar with more often. However, it’s important to have the right policy for your needs so that you are covered in the event of an accident. Otherwise, you could find yourself out of pocket and your policy may be invalidated.
If you work for a large business, your employer may have an insurance policy in place to cover you. And if they don’t, employers still have a legal requirement to ensure that any vehicles used for company business are insured and safe to use, whether or not they are company cars.