This week's episode of, I hate numbers is talking about Buying your car through your business. Check out last week's episode where we talked about saving tax with company benefits. tax-free and trivial benefits

What is a company car?

This is a car bought by your company, you use it for business and personal use. By the way, driving between home and work is normally considered personal use.

Working out the Benefit Value

There are three key numbers that we consider when looking at Buying your car through your business

• How the car is powered
• The list price of that vehicle
• CO2 emissions of that car.

Listen to find out more

CO2 emissions and tax

The lower, the CO2 emissions of the car, then the lower, the resulting tax charge will be.

An electric vehicle has no emissions, that means a tax-free benefit. Now when it comes to hybrid cars, these also have a favourable tax treatment.

Listen to find out more

Contributing towards the car

There could be a number of reasons for this. It could be that you decide to go through it, another vehicle, which your employer can't afford. And you may be that employer if it's your company. The advantage of making a capital contribution is tax savings for both you and the company.

Listen to find out more

An alternative

It may not be to not bother buying the car and for you as the individual to purchase the car in your personal capacity. If you do that, then you have the option of charging your business, charging the company, 45 Pence per mile for each business model that you travel. Once you go over the 10,000 miles, then you can charge 25p. That can be claimed tax-free it counts as a deduction for the company. And, therefore it may be worthwhile to consider that option as well.

Listen to find out more

Conclusion

In conclusion, providing a company car, especially an electric or hybrid car can save a lot of tax, personally and for your business. It can even be cheaper than having higher salary.

Your business needs to grow, serve and make money. Buying your car through your business can be a great pay you and your staff efficiently. Contact us to talk about this or other ways where we can help your business.

Numbers

What would a I Hate Numbers podcast be like without some Numbers !

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What Next

Make yourself comfortable. Sit back and listen.

Even better subscribe so you do not miss an episode.

In This Episode

• Understanding how we work out the benefit value of accompany car
• Appreciate why buying an electric or hybrid car is good for your pocket, as well as the environment
• Why you might be better off buying your own car
• Developing your own Numbers confidence and decisions
• Take more control of your numbers to help make you money, survive and thrive

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks, and welcome to episode 36 of I Hate Numbers. The mission of the show is to improve and strengthen your money mindset, help you make more profit in your business, save time, and allow you to enjoy the business that you have. This week's episode of I Hate Numbers is talking about company cars and tax, should you buy your car through your business.

In last week's episode, we talked about saving tax with company benefits. I'd suggest you check out last week's episode, talk about those lovely things of tax-free and trivial benefits. In this week's episode, we are going to focus on cars being one of those potential purchases. In this episode, I'm going to be looking at how the tax impact on company cars is felt, both for yourselves as an individual and for your business.

We're going to look at electric and hybrid cars. Are they a good thing? Should we consider buying them through our business, for our company? And we'll also look at options to buying a company car. Let's crack on with the broadcast. Firstly, let's clarify a couple of terms here. What do we actually mean by company car?

Well, we're talking about a car that your company, your limited company purchases for the use of yourself for personal use. So, even if you drive between home and work, that's considered personal use and, potentially, a benefit would arise. And secondly, by cars, we're specifically focusing on those vehicles that are designed to carry people as opposed to vans that are designed to carry goods and services.

The tax treatment of vans, we're going to deal with in a separate episode of I Hate Numbers. Now, the whole idea behind a company car is that your business, your company buys the vehicle, provides you for your use, and you use that car for personal reasons. And as I said earlier, even if you drive just between your home and your office, that's considered private usage and potentially a tax charge would arise.

There'll be tax payable by you as the individual user, and there'll be tax payable by your business, by your company, and that tax will be in the form of national insurance. When we work out the value of the benefits, there are three key numbers that we take into account. Number one is how is your car powered?

What's the power supply? Typically, is it petrol? Is it diesel? Is it electric, or is it a hybrid vehicle? The second number that we're interested in is what's the list price of that vehicle? Notice we're using the word list price, not what it actually costs you to go and buy it. And here's the third variable.

The third variable that we consider is what's the CO2 emissions of that particular car? Now, nobody can be expected to memorise the hundreds and hundreds of CO2-emission vehicles that are actually out there. So, lucky for us, we can find that information quite easily. So, the three key numbers that we need to get hold of - what's the power supply?

Is it petrol? Is it diesel? Is it hybrid or is it electric? What's the manufacturer's list price of that vehicle, and what's the CO2 emissions? Once we've got all those three key numbers, then we can actually piece the jigsaw together. The general calculation for working out the value of that benefit is to take the list price of the vehicle and multiply it by a particular percentage.

That particular percentage that we apply to the vehicle's list price is based on the CO2 emissions. As a heads up, the lower the CO2 emission, then the lower the percentage that we apply. The higher the CO2 emission, then the higher is the percentage. Let's start up with the idea of the list price. Now, the list price that we use includes any VAT that you pay over to the dealership, and it's based on the manufacturer's list price.

So, unfortunately, it's not what you manage to secure in a good deal. It's what the manufacturer's list price of that vehicle is. We take into account any personal contributions that you as the employee, you as the director, will make towards that vehicle, and we're allowed to deduct a maximum of 5,000 pounds.

So, that's step one. Determine what the manufacturer's list price is, and if any personal contributions are made by you as the director, employee, or by a member of your team, if you're providing them with a company car, then that gets taken into account. Later on in the podcast, I'm going to throw a few numbers into the mix so we can demonstrate why it may be worthwhile for you or your employees to actually make a contribution towards the purchase of that car.

The second thing we take into account is what's the CO2 emissions of the vehicle because the CO2 emissions determine what the relevant percentage is that we apply to the list price of the vehicle. In general terms, the lower the CO2 emissions of the car, then the lower the resulting tax charge will be.

We look at the situation as it exists for the tax year 2021. Well, a car that’s registered before 6th of April, 2020 with no CO2 emissions i.e. an electric vehicle will have no percentage applied i.e. no CO2 emissions, therefore, the relevant percentage will be zero. That's good news. What that means is if you buy an electric vehicle, then the value of that benefit for the year 2021 will be zero.

Good news indeed. If we consider a vehicle that's got CO2 emissions between 51 and 54 grams of CO2 per kilometer, then the percentage applied is 15%. And the extreme end of things, if your vehicle in question emits CO2 in excess of 170 grams per kilometer, then you've got a whopping 37% percentage to apply.

One more thing to consider is that if your car is diesel, diesels are considered very bad for the environment, very bad in terms of tax benefits as well. So, add a supplement of 4% to that percentage. However, the maximum you can apply is 37%. That’s what we've got at the moment. If you've got a vehicle, let's assume the list price of that vehicle was 20,000 pounds,

you look at the CO2 emissions and you read off that the actual relevant percentage is 25%, then the value of that car benefit is 25% times 20,000, which equals five grand. That's the figure on which you as an individual will pay tax and on which your company will pay employer’s national insurance accordingly.

What does that mean in pound note terms? Well, in pound note terms, it really depends whether you are what's called a basic-rate taxpayer, a higher-rate taxpayer, or an additional-rate taxpayer. Bear with me. So, if we've got a car that has a value of the benefit of, say, 5,000 pounds, if you are a 40% taxpayer, that's two-grand tax bill that you've got.

If you are the company, then you pay 13.8% on the value of that benefit, and that's your employee's national insurance. Now, the good news is though, if you do have a company car, that's your tax exposure, but the company can then deduct the cost of running that vehicle or the insurance, the car tax, the repairs on that vehicle,

and that could all be claimed as a company cost. So, that's got to be positive all way round. In their bid to encourage more and more people to drive electric or worse, hybrid vehicles, then the percentage will go down. And as we've said, if it's an electric vehicle, then you'll get a 0% for 2021. At most, based on current rates, that will go up to 2% in the next couple of years.

So, that's still going to be a worthwhile purchase to buy electric cars for your company and there are an incredible range of models now. There is an additional benefit as well. You will get a grant given to the dealership, the manufacturer, to help you reduce the cost of the purchase of that electric car.

The dealer does all the work and you can get a grant of up to 35% of the purchase price, maximum grant of 3,000 pounds. So, as you can see, there's a strong encouragement for people to go out and buy electric cars. Now, when we come to hybrid cars, hybrid cars also have a favorable tax regime. The percentage that we apply is really dependent on how far that car can travel on a single charge.

For example, if the electric range on that hybrid car is between 70 and 129 miles, then that's a 5% benefit charge that's applied to the list price of that vehicle. About hybrids - if your hybrid vehicle has an electric range of 130 miles plus, then the relevant percentage is 0%. So, we've talked about vehicles, we've worked out how they're taxed, so it's based on list price times a relevant percentage,

and that percentage is determined by how that vehicle is powered. Is it electric? Is it petrol? Or is it diesel? Or is it a hybrid vehicle? I said at the beginning of the broadcast that sometimes it may be that you wish or you make a contribution towards the purchase of that car. Now, there could be a number of reasons for this.

It could be that you decide to go through another vehicle which your employer can't afford, and you may be that employer if it's your company. The advantage of making a capital contribution is tax savings for both you and the company. Let's say for argument's sake, you as an individual, contribute five grand towards the purchase of that vehicle, and you happen to be a higher-rate taxpayer.

Now, if indeed your vehicle has a CO2 percentage of 30, then that means the tax that you save is 600 pounds per annum. The company will save 207 pounds per annum in terms of national insurance. So, making a five grand contribution towards the car is a tax saving of 600 quid a year, and a national insurance saving of 207.

It's getting a little bit strained with all these numbers flying about. Please do check out the show notes where I will provide some illustrations on the impact of the company car and tax regime. So, we talked about how the benefit is calculated. We talked about the impact on the employee and the employer.

We talked about capital contributions. We talked about electric cars, hybrid petrol, and diesel. An alternative may be not to bother buying the car and for you as the individual to purchase the car in your personal capacity. If you do that, then you have the option of charging your business, charging the company 45 pence per mile for each business mile that you travel.

Once you go over the 10,000 miles, then you can charge 25 p. That can be claimed tax-free. It counts as a deduction for the company, and therefore it may be worthwhile to consider that option as well. What I know is with around a million company-car drivers in the UK, electric vehicles are certainly taking traction.

They're certainly becoming more popular, and it becomes a much more affordable perk of your job. Check out the show notes at the end. If you want to have a look in a bit more detail, some of the numbers that are involved in the consideration of whether you should buy your car through your company.

That's all from me folks. Hope you got some value from the show. I'd love it if you could subscribe and spread the word. Feel free to subscribe so that you don't miss out on an episode. Until then, have a great week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value.

If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.