Q&A: Can company cars be offered as a tax efficient benefit?

Company cars are treated as a taxable benefit and, with increasing benefit charges, until quite recently, they have been an expensive benefit to have. Since April 2020, however, the applicable rates have reduced significantly for green cars making them a more attractive proposition.

Pure electric cars are currently only taxed on the employee at a rate of one per cent of the list price of the vehicle (and two per cent from next year, 2022/23). For example, a new electric car costing £35,000 would have a taxable benefit of £350 for 2021/22 which would equate to an annual tax charge of £140 for a higher rate taxpayer and £70 for a basic rate taxpayer. In some cases, the full expense of the car can also be claimed by the employer in the year of purchase. Further tax savings are also available where an electric company car is offered as part of a salary sacrifice scheme.

Hybrid vehicles currently offer relatively low benefit rates as well, whilst company vans can also be a popular and tax efficient choice for many employers. Unlike with cars, vans are not treated as a taxable benefit where there is some ‘incidental’ private use, including commuting to work.

When purchasing a van some care must be taken, however, as what may look like a van, may actually be treated as a car for tax purposes by HMRC!

If you are looking to revamp the remuneration package offered to your employees, we would recommend that professional advice is sought beforehand to confirm the tax implications of the various benefits offered for both the employer and the employee.