Company cars are the subject of many a lively debate and have been known to cause more rifts than any other topic in business! We’re often asked what’s best – having a company car or not? Is it better to go for diesel, petrol or electric? Is it preferable to have fuel or not? There’s no quick answer to these questions, unfortunately, because each car and taxpayer is different, so we provide proposals on an individual basis.

Company car policies for employers

Although the tax on company cars has risen over the years, it’s still a popular perk. Many drivers like the fact that it’s hassle-free driving - the car will generally be fully maintained, and a replacement arranged if it’s off the road for any reason. If you have a large number of employees, it’s often simpler to agree on a policy across the board, with company cars from specific list prices and CO2 emission bands, or fixed car allowances.

Offering a company car means the driver will pay tax through their PAYE on the P11D value of the car, whilst the employer pays the Class 1 A national insurance. The P11D value is based on the annual amount that HMRC believes it’s worth, calculated using the list price of the car when new and its CO2 emissions. Rates change each year with the Budget. 

With a fixed car allowance, both the driver and the company pay tax and national insurance on the allowance in exactly the same way as a salary.

An important point to remember - avoid any surprise tax bills for the driver and penalties for you as the employer, by letting the HMRC know in plenty of time about any car changes. 

How to choose the right company car

Our advice? You should choose a car that you like and is suitable for you, not just one that’s tax efficient. HMRC will tax you based on the list price of the car when new and the CO2 emissions because they are;

• encouraging manufacturers to make environmentally friendly cars
• incentivising you to choose a low CO2 emission car
• taxing you on the list price when new, to discourage you from choosing a less environmentally friendly second-hand car.

There can be a huge difference in your taxable P11D benefit, so it’s best to do your research and choose wisely.

Fuel or no fuel

Again, with fuel, the taxable benefits change regularly with each Budget. The current rates can be found in our resources guide. If your private mileage is low, you might be better off claiming an agreed mileage rate for business miles, rather than having a fuel benefit.