Company cars for the kids

June 7, 2018|In KRW Tax Tips|By Keith Witchell

With company car tax based on CO2 emissions and the list price when new, company cars are rarely tax efficient for company owners, usually due to the type of cars they want to drive!

We are often asked whether or not a company Director/owner should buy their new car via their company or own it personally, and 9 times out of 10 the answer is to own it personally due to the emissions-based company car tax rules which penalise anything other than the lowest emission cars.

However, with the cost of car insurance for 17 and 18 year olds being so high, and with most parents wanting their children’s first car to be safe, economical and not too powerful, the prospect of buying a low emission car through your company for your child to use is well worth considering.

Let’s consider the company car benefit in kind percentages for 2018/19 for low emission cars, which are as follows:

CO2 g/kmPetrolDiesel*
*4% diesel supplement only applies if vehicle not certified to Real Driving Emissions 2 (RDE2)

At these low emission levels, the amount of money your company can save in Corporation Tax in buying, insuring and running a car for your child (excluding fuel) will often outweigh the extra personal tax you will have to pay as a Director on the benefit in kind. Especially when you factor in the high cost of insurance for young drivers.

In addition, if your child works for your company (full or part-time) then they would incur the benefit in kind in their own right, meaning that it wouldn’t have to go down on your P11D. This can be advantageous where your child earns less than their tax-free personal allowance, since the benefit in kind may not then trigger any payment of personal tax.

This is best explained with an example. Your child turns 17 and you buy a VW 1.0 Take-up! 60PS S/S for them to use which has a list price of £9,605 and CO2 emissions of 96g/km.

The benefit in kind will be £9,605 x 20% = £1,921. If your child doesn’t work for the company then this will go on your P11D. Assuming you earn a low level salary of £8,424 (the optimum level in most cases) as a Director/shareholder then with the personal allowance being £11,850, and assuming no other sources of income other than your salary and dividends from the company, then you would pay no personal tax on this benefit in kind. However, it would have a knock-on impact on the level of dividends you can withdraw from the company before hitting higher dividend tax rates.

The company will have to pay Class 1A NIC @ 13.8% of the benefit in kind amount, which equates to £265, but then it will save tax on the cost of buying the car, insuring it, plus servicing, tyres and other running costs (other than fuel), and the Class 1A NIC cost.

All in all the small personal tax cost (if any) plus the minor Class 1A NIC cost should be more than outweighed by the Corporation Tax saving for the company, making this a very tax efficient perk that is well worth considering.

Key Facts

  • Company car tax is based on CO2 emissions and list price when new
  • Consider your company buying a low emission car for your teenage child
  • The benefit in kind would be low meaning little or no personal tax to pay
  • Class 1A NIC would also be minimal
  • The company saves Corporation tax on buying, insuring and running the car

For further advice on this matter, please contact me.

Keith Witchell