07 November 2016
Do I pay less tax if my spouse has a company car instead of me?
The increasing cost of company car tax makes it inefficient for company owners to run cars through their companies in most cases, unless they are running very low emission vehicles.
Any Director or employee who is provided with a car to use by their employer will be subject to company car tax, which is based on the list price and Co2 emissions of the vehicle.
We are regularly asked by our company owner clients whether it is worthwhile running a company car, compared to running it personally and claiming for their business mileage, and in the vast majority of cases we advise against running a company car, as the personal tax burden usually outweighs the overall tax saving for the company on the costs of providing the car.
So how do the rules work if the Director’s spouse has a company car instead of the Director themselves? Anti-avoidance rules will usually tax the Director on any car provided to their spouse or another member of their family as if it had been provided to the Director themselves.
However, what if the Director’s spouse or relative is also a Director of the company? In this case the anti-avoidance rules do not apply and the company car benefit will apply to that Director instead. As a result, it may be possible to arrange for a company car to be in the name of a lower earning spouse or relative, providing they are also a Director of the company.
What is the tax saving? Where the Director’s spouse or other relative is in a lower tax bracket then a saving will be achieved. However, as mentioned above, it is rarely tax efficient to run a company car so arranging for a company car to be in the name of a spouse or other relative is generally only likely to be worthwhile where that spouse or other relative is not fully utilising their personal allowance (i.e., their earnings are below £11,000 per annum), as this will reduce, or in some cases remove, the personal tax payable on the company car.
In summary then, if you share a car with a spouse or other relative, who is also a Director of your company, then having a company car in their name could save some tax where their earnings are in a lower tax bracket, and especially where they are not fully utilising their personal allowance.
Please note that the company also has to pay 13.8% Class 1A National Insurance on any car benefits provided to Directors and employees, and this charge will apply whichever person has the car.
For further advice on company car tax, please contact me.
- Company car tax is based on a car’s list price and Co2 emissions
- It is rarely tax efficient for a company owner to run a company car, unless it has very low Co2
- If a Director’s spouse or other relative has a company car, it’s usually taxed on the Director
- However, this will not be the case where the spouse or other relative is also a Director
- Good savings are possible where the spouse or relative isn’t fully using their personal allowance