Many contractors choose to run a company car to get them to and from clients’ locations but what are the tax implications involved with doing so? As is so often the case with HMRC, it’s not as simple as paying for the car and using it – there’s always going to be something you can be taxed on. And in this instance, that tax is a benefit in kind.

In this article, the Panthera team explain how you can claim for your mileage on your current car, how to get a company car through your limited business, and how company cars are taxed.

Claiming for your mileage

Before we examine what’s involved in buying a new company car through your own limited company, let’s first look at how you can save money by claiming for your mileage on your existing vehicle.

Whenever you visit a client’ premises and you travel in your personal car, you can claim for mileage. This is how much you can claim:

 

Type of vehicle used	First 10,000 business miles of the year	Each business mile over 10,000 of the year
Cars and vans	45p	25p
Motor cycles	24p	24p
Bicycles	20p	20p

To claim these costs, fill out the relevant part on your self assessment form.

For record-keeping, note down the date of each journey claimed for, whether you made the trip for business or personal reasons, the journey’s start and end points, and the number of miles travelled on each journey. Please make sure you keep the records for 5 years.

“Actual expenses method”

You can claim for fuel, insurance, VED, servicing, and the cost of repairs during the tax year.

Let’s say that you travelled 40,000 miles and kept the relevant records to show that 30,000 of those miles were driven for business reasons. That means that 75% of the use of your car is for commercial reasons.

If you spent £6,000 in total on fuel, insurance, VED, servicing, and the cost of repairs during the year, you are allowed to claim 75% of that back as legitimate business expense, equalling £4,750.

Buying a company car

You may want to purchase a company car through your business. When you do this, your company becomes responsible for the car’s running costs and maintenance. Most of the costs may be claimed as legitimate business expenses for your company.

However, because you will be receiving the car because you’re an employee of the company, it will be taxed as a benefit in kind which you will have to include it in your P11D form when you submit your self assessment.

How company cars are taxed

The amount of tax you pay on a company car is determined by several factors, including:

• The list price of the vehicle (the value of the car set by the manufacturer, minus the price of tax-free items),
• The CO2 emissions the car produces,
• The type of fuel the car uses (petrol, diesel, or electric),
• If your company is going to pay for the fuel costs, and,
• The personal income tax bracket the vehicle benefit falls into.

In order to work out how much you will have to pay in tax, you multiply the vehicle’s list price by the corresponding CO₂ tax percentage. You then multiply this figure by your personal income tax percentage to see how much tax you will need to pay on the company car.

Below is a table of all of the CO₂ benefit in kind percentages:

CO2 emissions (g/km)	2018/19 Benefit in Kind %
0-50	13%
51-75	16%
76-94	19%
95-99	20%
100-104	21%
105-109	22%
110-114	23%
For each additional 5g	Add 1%

As you can see, the more CO₂ a vehicle produces, the more you personally have to pay in tax.

These are the benefit in kind percentages for petrol and electric cars. If you are considering buying a diesel car, add an additional 4% onto the percentages shown. The Government is actively trying to discourage ownership and use of diesel vehicles and they’re choosing financial penalties as the way to incentivise people.

An example of how this works

Let’s say that you decide to purchase a new car through your limited company. In this example, the car has a list value of £20,000, it has a CO₂ emission of 102 g/km, and you fall into the higher rate tax bracket.

Start by taking the list price of the car, which is £20,000.

Then, apply the benefit in kind percentage for the car’s CO₂ emissions, which in this case is 21%. £20,000 × 0.21 = £4,200.

Finally, multiply this figure by the percentage of income tax you pay, which is 40% in this case. £4,200 × 0.40 = £1,680. The total benefit in kind tax you will have to pay on this company car is £1,680.

We can help

If you would like to more about how company car tax works for contractors whether you’re a sole trader or you run a limited company, get in touch with our team. Our professional contractor accountants are more than happy to discuss any ways we think you can save money on your tax bill with you.

Call us today on 01235 768 561 or drop us an email to enquiries@pantheraaccounting.com for advice and support on chasing overdue invoices – we’ll be back in touch with you shortly.