Contractors' Questions: Does a company car beat owning it privately?

Contractor’s Question: I’ve read that the taxman is toughening up on company cars among other benefits in kind, but is it still better value to have a company car instead of a privately-owned vehicle?

Expert’s Answer: There is no quick answer other than to say that while tax traditionally dictates the choice you will make, there are other factors to consider.

These factors are those that make a real difference, namely: affordability, type of company car and the envisaged proportion of both business and personal driving.

You should initially work out the total costs of privately running the vehicle. This would include financing the purchase, maintenance, insurance, tax and depreciation.

Secondly, calculate how much your employer would reimburse for business mileage, additional to the value of any cash offered to you as an alternative to the company car.

Then, compare that with the tax on the benefit, which is based on the vehicle’s list price and its emissions rating.

You also need to consider fuel. With company-paid petrol, the tax charge will be irrespective of the private mileage you accumulate. The HMRC rules say this is based on a fixed amount of £20,200 multiplied by the emissions figure as a percentage.

Finally, compare that with the amount of fuel you would have to buy for private journeys. In this sense, company cars can still represent a perk as if you are a 40% taxpayer, the tax alone might fund about 10,000 miles worth of fuel.

However generally-speaking, what was once a valuable perk should now be considered only in certain circumstances.

The expert was Jon Sutcliffe, partner at Kingston Smith LLP, a chartered accountancy firm.

 

Wednesday 21st November 2012