If you’re thinking of offering your employees a company car you no doubt have many questions.
Does it make sense to offer employees company cars? How do you go about starting a company car scheme? What does it mean for taxes and expenses?
Here we’ve put together a guide to help you make sense of company cars, tax and expenses.
Your role as employer
When you offer a company car to an employee, you need to be very clear on your responsibilities and obligations, particularly where tax and National Insurance (NI) are concerned. You can find out more detail directly from the government, here, but let’s break it down for you.
In short, you’ll need to consider three areas:
- What is exempt
- What you need to record, report and pay
- How to work out values
Firstly, it’s not straightforward and you’ll need to ensure you have record keeping systems which help to simplify the process. Secondly, you need to consider the car itself, the fuel used and the type of journey. So for example, you’ll need to know and record if a company car has been used for a private journey.
What is exempt
There are some rules you need to abide by, in terms of what is exempt when it comes to reporting on company car benefit arrangements. In the first instance, you need to distinguish between cars and fuels offered as part of a salary sacrifice scheme, or other methods.
For a car to be exempt you will need to consider:
- Is the car privately owned? If so, you don’t need to pay anything.
- Is the car only used for business journeys? You will need to declare this and ensure it is abided by.
- Is the car adapted for disability? If so these cars are exempt for such private use as traveling to the place of work or training.
For fuel used or purchased to be exempt, you will need to consider:
- Did the employee buy the fuel themselves for their own use?
- Do your employees ‘pay you back’ for fuel you’ve purchased on their behalf?
There are some notable considerations when it comes to exemptions. For example, you don’t have to pay anything on ‘pool’ cars, or if you’re a sole trader, or if you’re providing a car privately to a family member even if they work for you.
So what do you have to pay?
For cars and fuel that aren’t exempt, you’ll need to both report them to HMRC and potentially pay NI on the value of the benefit.
The two aspects you need to pay attention to are how you report company cars and fuel on the P11D and the Class 1A NI you’ll be liable for paying. You have a legal responsibility to keep records of every benefit and expense offered to or incurred by your employees.
There are a number of different ways you or your accountant, can work out what you need to pay. You can use the HMRC’s company car calculator to automate the process. Alternatively, you can do the sums yourself using a P11D working sheet (Working Sheet 2).
For both, you will need to know the taxable value of the car. This depends on the cost of the car, its fuel type and emissions, as well as the availability of the car during the tax year. The two options above will help with this.
You may also be able to use standard advisory fuel rates to make things easier.
Should I offer a company car?
The reality is that there isn’t a straightforward answer to this question as it depends very much on the nature of the employee’s salary and benefit package, as well as the nature of their business driving.
It used to be a simple expectation of certain positions but now it’s not clear-cut. Often the most sensible decision is to ask your accountant for advice in your particular circumstances. If you do offer a company car then always make sure you keep accurate records.
Are you thinking of offering a company car? What’s your main reason? Please share your thoughts.