If trying to wrap your head around benefits in kind, when it comes to company cars and vans, is driving you crazy, then the team at HRD are here to make things simple and show you why an electric or hybrid car might save you some serious cash.
What’s the deal with company cars and vans?
If you have a company car or van, you might be wondering how things work when it comes to taxes.
When your employer gives you a vehicle for personal use, it’s considered a benefit in kind (BIK), and you’ll need to pay tax on it. It can seem a little confusing at first, but the main things you need to know are:
How is the benefit in kind for cars calculated?
The tax you pay on a company car is determined based on a few factors. These are:
- List price: This is not the price you paid for the car; it’s the amount the car was originally worth as new, including options and VAT, but minus the first year’s registration fee and vehicle tax.
- CO2 Emissions: The lower the emissions, the lower the tax. This is where electric and hybrid cars can offer significant savings.
- Fuel Type: Diesel cars usually have a higher tax rate due to their higher emissions, unless they meet certain emission standards.
Here’s a quick formula to figure out the taxable benefit:
Taxable Benefit = (List Price) x (CO2 Emission Percentage)
The CO2 emission percentage varies from 2% for the cleanest electric cars to up to 37% for gas-guzzlers. Diesel cars have an additional surcharge, making them a bit pricier in terms of tax.
Note: If you buy a second hand car, the list price used for calculating the taxable benefit will be its original value when new, not what you paid for it.
Why go electric or hybrid?
If you are considering a company van or car, there are a number of reasons why you should give serious thought to electric or hybrid:
- Lower tax rates: Electric cars can have a BIK rate as low as 2%, which means huge savings compared to traditional petrol or diesel cars.
- Environmentally friendly: You’ll be doing your bit to reduce carbon emissions.
- Fuel savings: Charging an electric car is usually cheaper than filling up a tank of petrol or diesel.
How are company vans taxed?
Vans are classified differently from cars, and the way taxable benefit is calculated is different to reflect that. The taxable benefit for a company van is a fixed amount, regardless of the van’s list price or CO2 emissions. For the 2024/25 tax year, the benefit is set at £3,960 for the van, plus an additional £757 if you receive free fuel for private use.
Electric vans: no tax to pay
The good news if you’re lucky enough to have a fully electric company van, is that these have a benefit in kind tax rate of 0%, which means there’s no tax to pay on them. This makes electric and hybrid vehicles a great option if you’re looking to save the environment, and save some money along the way.
What about private fuel?
Private fuel benefits are calculated differently for cars and vans.
Cars:
If your employer covers your private fuel costs for a car, you’ll need to pay tax on this benefit. The calculation is pretty straightforward:
Fuel Benefit = (Fixed Amount) x (CO2 Emission Percentage)
For cars, the fixed amount for the 2024/25 tax year is £27,800. So, if you’ve got a car with a CO2 percentage of 25%, your fuel benefit would be £27,800 x 25% = £6,950. This figure is the benefit that you would need to pay tax on (20% if you’re a standard rate tax payer and 40% if you’re a higher rate tax payer)
Vans:
If your employer covers your private fuel costs for a van, the calculation is simpler. You’ll pay tax on a fixed fuel benefit amount, which for the 2024/25 tax year is £757.
In conclusion
Understanding the tax implications of company cars and vans doesn’t have to drive you round the bend. Remember, going for an electric or hybrid vehicle can represent a significant tax saving, and help the environment. And if you’re driving a van, the fixed benefit amount makes it easy to know what you’ll owe.
Got more questions? Or need some personalised advice? We’re just a call or an email away. Let’s make managing your company vehicle benefits as straightforward and stress-free as possible.