Company Cars For Family Members - What Are The Tax Implications?

Company Cars For Family Members – What Are The Tax Implications?Written on November 6, 2014 by Kirk Rice LLP

Taxing Times Questions

The Question:

I have been running my own Limited company for around 10 years. I draw an income from the company that pushes me in to the 40% tax rate. My daughter has recently passed her driving test and I want to buy her a new car. I have some surplus cash in the company but if I take this out I will have to pay more tax which will reduce the amount I will have to buy the car. Can I get the company to buy the car or is this going to cost me even more in tax? I have never put my own car through the company as the huge tax bill associated with doing this does not make it worth while.

Kirk Rice LLP answers:

Once upon a time many business owners had company cars and their companies would pay for all the fuel and running costs. This was a good perk for many people. However, the labour government introduced significant tax hikes on company vehicles to the point where it no longer made financial sense for people to have a company car.

The system for taxing company cars has changed significantly from what it was 10 years ago. Now cars are taxed with reference to the Co2 emissions level of the car with low emission cars enjoying a low level of tax and the big gas guzzling vehicles being taxed quite heavily. With the latter it still does not make financial sense for the owner of a small Limited company to have a company car, however, with the low emission cars I think there is now a case for them.

For the individual the company tax charge can be very low, and, for the company it is possible to write off the total cost of a low emission car against taxable profits in the year of purchase. There are a number of desirable low emission cars on the market including the traditional diesel engines as well as electric or petrol/diesel electric hybrid variants.

In the right circumstances members of a family can have a company car with low tax charges all round. For example, lets say that you provide your daughter with a company car and lets say it is the Peugeot 108 1.0 stop & start with a list price of £9,745. Your daughter does not work for the company and all mileage will be private.

Your tax position:

As your daughter does not work for the company you will pay income tax on the provision of the car. This is calculated at £9,745 @ 11% = £1,072 @ 40% = £428.80 tax per annum. (Please be aware that the rates in particular on low emission cars are slowly increasing each year. 11% is the rate for 2014/2015 and next year it will increase to 13% rising to 19% by 2018/2019.)

Company tax position:

The company will get tax relief on the purchase of the vehicle in the year of purchase. Tax saving of £9,745 @ 20% = £1,949 (but only for cars bought before 31/3/2015)
The company will pay national insurance on your taxable benefit i.e. £1,072 @ 13.8% = £148
Full VAT reclaim of VAT on car servicing etc.
Corporation tax relief on the running costs and on the £148 above.

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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made

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