If you need a new car that you will use for work and personal journeys, you might not know whether you should lease the car through your business or lease it personally. It sounds like a fairly straight forward decision, after all, it’s one or the other. But in reality, there is no one correct answer. What to do will depend on your situation and preferences. When it comes to Leasing Company Vehicles, Is it better to buy or lease a car through my company? And are there any tax benefits of electric cars? Learn the answer to these below!
First, You Need to Know About Company Car Tax
There is a type of taxation known as Benefit in Kind, or BiK for short. This is a type of additional taxation that employees are faced with when they receive a benefit from their job which is not financial. When this benefits their lives outside of work, the employee must pay an additional tax on it, just like they pay tax on their salary.
There are different examples of what falls under BiK, but the most common example is receiving a company car, hence BiK is sometimes (wrongfully) called company car tax. These cars may be used for work purposes, but the employee benefits because they can use them for personal journeys.
The amount of additional tax that the employee must pay when using a company car is based on multiple factors, such as the value of the company car (its P11D Value), the individual’s tax rate (20% or 40%) and the vehicle’s carbon emissions rating.
The more environmentally friendly your company vehicle is, the less you will have to pay!
The only exception is a van or pickup. These vehicles are taxed at a fixed rate of £3,350 at your tax rate.
Leasing a Car Through Your Business
If you get a company car, there is only one way of avoiding BiK in the immediate future (see tax benefits of electric cars below). But there are benefits:
Company car tax is often cheaper than personal car tax
Businesses usually get exclusive car deals
VAT registered businesses can claim the VAT back, which could make it cheaper than leasing personally
Payments will be tax-deductible regarding your Corporation Taxation (however the benefits are usually minimal)
Leasing a Car Personally
Personal leases can miss out on some good car deals and do not get the VAT and Corporation Tax benefits, but there are some other perks:
You’ll receive a new car more often
Road tax is often included
You will not have to pay company car tax (BiK tax)
If you lease the car personally but still use it for professional purposes, you will need to record your mileage on these journeys.
You can receive a mileage allowance fixed at 45p for every mile driven up to 10,000 miles and 25p for each mile beyond that.
The Tax Benefits of Electric cars
In July 2019, The Treasury announced that they would offer tax breaks for those driving electric company cars. This is to encourage more companies to choose carbon-emission free vehicles and contribute to a sustainable future in the UK, aligning with government aims.
In the current tax year (2020-2021), there will be no BiK tax to pay on electric vehicles and in the following two tax years a generous tax rate of 1% and 2% will be applied respectively. What happens in the following years has yet to be decided.
Overall, leasing an electric vehicle could save company employees thousands of pounds each year.
What About Hybrid Models?
The Treasury also announced that hybrid models could benefit from the same zero BiK rate this tax year and the lower rates in the following tax years. The same rates will be applied to hybrid models that:
Emit fewer than 50 grams of CO2 per kilometre
Can travel 130 miles on electric
However, at the time of writing, you do not own one of these hybrid vehicles!
How do we know? Because these government guidelines cannot be met because hybrid vehicles with these capabilities have yet to be made, and thus yet to be owned.
Nevertheless, you could still benefit from a 12% BiK rate if your hybrid car can travel at least 30 miles on electric. For more information on your specific vehicle, it is best to speak with a qualified accountant.
For Further Guidance Leasing Company Vehicles, Contact Yorkshire Accountancy!
Our expert accountants have experience in Benefit in Kind tax and dealing with tax queries regarding company car and electric vehicles. Working out the tax-efficient vehicle option for you can be confusing.
If you have a question or want to know more, do not hesitate to shoot us a message or pick up the phone!
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