A company car has always been something of a status symbol – it usually means you’re ‘going places’ in every sense, and it can often save a good amount of money compared with running, fuelling and maintaining a car at your own expense.
But what do you need to know about company car benefits – and importantly, what can affect the value of the car, and potentially make it a false economy to accept it as a perk in the first place?
Company car perks
A crucial factor is whether or not you use the car outside of your working life; depending on the terms of your contract, your vehicle might spend its time outside of office hours parked up on your driveway, or you might alternatively be entitled to use it as you see fit for evenings, weekends and holidays.
If you use the vehicle for personal activities though, you become liable to pay the tax on an equivalent portion of the car’s value – and here’s where it gets complicated.
Even if you use the car for your morning and evening commute, this is classed as being outside of your business activities once you actually get to work, so you’ll be charged the tax on this use.
Your liability will be reduced on low-emission vehicles, if you’ve paid anything towards the original purchase price of the car, and if you only use it part-time; the tax you pay will also be adjusted based on the cost of the car, and potentially the type of fuel it runs on.
It gets even more complicated if your contract covers all fuel costs – including fuel you use when driving the car in your personal time – and the tax on this is worked out separately.
As a consequence of all of this, there’s an HMRC questionnaire to fill in, covering details like the length of time you use the car in the current tax year, its price, any payments you make towards its purchase and use, its registration date, its fuel type, its engine capacity or CO2 emissions, and whether you pay for the fuel.
Once you’ve filled in all of these details, you’ll be told how much tax you owe – but if anything changes, such as the value of the vehicle, the duration you use it for in the year, or the type of fuel it runs on (for example, if you have it adapted to LPG), then you need to inform HMRC all over again.
Having said all of this, the tax system is designed so that you pay the tax on your personal use of the vehicle, but not when you use it for legitimate business purposes – so overall, it still represents a benefit compared with using a privately owned vehicle for work.
And if you are self-employed, there are ways to include certain costs associated with your vehicle in your annual tax return, so that you do not miss out on the entitlement to tax benefits for running the sole trader equivalent of a company car.