A company car is more than simply a nice to have. There can be serious savings to accrue to both the individuals and the company if they play their cards correctly. Evaluating the decision on whether or not to proceed with the planned purchase or lease of the car is one of the range of accounting services we offer to our clients. The following article considers the breath of benefits and limitations to companies and individuals of a company car.

There are many direct and indirect incentives to having a company car. At a senior and intermediary level, it attracts the best candidates for the company as research has shown that if an employer offers a company car as a fringe benefit, they are likely to see the quality of applications increase since candidates would see it as a valuable incentive. Another benefit is that due to the car being purchased through the company it may mean that there would be better deals available with significant discounts hence you would be able drive a better car for less money than if you purchased it yourself. This is also the case with leasing because if you lease a car through a business it should be cheaper than leasing it personally.

However, there are many drawbacks too such as company car tax which is a disadvantage that’s seen by many as a deal-breaker. Due to this tax, leasing a car through the company could be more expensive than leasing it personally. This would depend largely on the type of vehicle in terms of whether it’s electric or consuming typical fuels such as petrol. This would influence the CO2 emissions of the car which is another factor that one must consider and is discussed in further detail later.  Another disadvantage is that the liability to the company is increased because the employee would also be using the car for personal use meaning that there would be an increased risk for the employer. Damage to the car or accidents may cost the employer dearly in maintenance and insurance premiums which adversely impacts profitability.

How does Company car tax work?

Company tax is incurred when the car is used for personal journeys which would be expected, as these journeys include the commute to and from work. The company tax is calculated via the level of CO2 emissions omitted by the car, personal tax band and P11d value of the car. The lower P11d value and CO2 emissions the lower the Company Tax incurred on the car.  

Is it cheaper to lease a car personally or through a business?

This depends on the level of P11d or CO2 emissions because if there are a high level of CO2 emissions and P11d then it would be recommended that the car isn’t leased through the business because the company car tax would be expensive. However, if the CO2 emissions and the P11d levels are low then it would be better to lease through the company due to the plethora of deals available with leasing through a company. In addition to this there are tax benefits including being able to claim 50% VAT back if the company is VAT registered on the monthly payments. However, if the car is used for personal use then the VAT cannot be claimed back.

In conclusion, depending on the levels of CO2 emissions and P11d we recommend that a company car is a wise decision. Cheylesmore Accountants can carry out a thorough assessment of the potential benefits and implications to a company and the individual of purchasing or leasing the car through either the company or the individual including devising tax optimising strategies to boost profitability as well as personal utility.