A common misconception is that cars given by a company are tax free. This is not the case, as a company asset is being used which may been seen as a cash equivalent and there will be tax payable on this, either through the payroll or via a P11D form issued to the employee.
A calculation needs to be followed to work out the tax payable on the car benefit.
How much tax paid is dependent on the following:
- Benefit in kind percentage (worked out using carbon emissions)
- List price (not the price paid)
If the car was not available for the whole year, then only the apportioned period would be taxable.
There is also a further charge if fuel is provided for the employee.
EXAMPLE – PORSCHE 911 GT3 4.0 PDK
With the list price of the car at £146,000, the benefit in kind percentage is 37%, so the benefit in kind would be £54,020 (£146,000 multiplied 37%). This would then need to be added to the tax return and tax would need to be paid at the rate of the tax that the employee pays tax at, i.e. If a 20% taxpayer, this would mean additional tax of £10,804 PER YEAR to drive the car. If they are a 40% taxpayer this would then be £21,608
EXAMPLE – TESLA MODEL 3
With the list price of the car at £39,935, the benefit in kind percentage is 2%, so the benefit in kind would be £799 ( £39,935 multiplied 2%). This would then need to be added to the tax return and tax would need to be paid at the rate of the tax that the employee pays tax at, i.e. If a 20% taxpayer, this would mean additional tax of £160 PER YEAR to drive the car. If they are a 40% taxpayer this would then be £320.
Its important an employee takes the above into consideration when choosing to accept using a company car.
LEGISLATION ON THIS FROM HMRC
Expenses and benefits: company cars and fuel: What to report and pay – GOV.UK (www.gov.uk)
HOW CAN WE HELP
We can help with advice on what cars work for employees as well as calculating the amounts payable. If an employee is issued a P11D, then we would help with regards to submitting their personal tax returns.
For the companies, we can calculate and submit the P11D forms as part of our payroll offering.