The company car you choose, how it is purchased and who by can have a massive impact on your tax bill.

I am often asked questions like ‘what car should I buy’, ‘should I have a company car’, or ‘what is the most tax efficient way of buying a car’. Unfortunately, there is not a simple answer to these seemingly simple questions. When it comes to tax is there ever?

Over the past few years the Government have seen a way of linking their stated targets in reducing CO2 emissions with clawing more tax out of the company car driver. Company car Benefits in Kind have for some years been linked to the CO2 emissions of the vehicle and this trend continues. Benefit in Kind rates now range from 5% (for zero emission cars) to 37%, and that is a percentage of the new market price of the vehicle (not what you paid for it). So it is clear that there is a massive reduction in tax if you can refrain from buying that Audi R8! These percentages have been steadily increasing each year and continue to do so.

This means that having a company car these days can be a painful tax experience and why so many have moved away from company cars to car allowances and other methods of car ownership. Perhaps the recent advent of larger numbers of zero emission and low emission cars has now made the prospect of a company car a viable consideration again for many.

In recent years this focus on low emission vehicles has also been applied to the Capital Allowances that can be claimed by businesses against their tax liabilities. The rates of capital allowances now range from as little as 8% to as much as 100% depending on the level of CO2 emissions. Cars that have CO2 emissions below 95g/km can attract 100% capital allowances in the first year, again a significant tax saving.

If you are using your own personal vehicle for business purposes then the first thing to say it is that there are no Benefits in Kind. You can claim 45p per business mile for the first 10,000 miles and then 25p per business mile after that, this comes to you tax free. Depending on the level of business miles you do, this can go a long way towards paying for the vehicle as well as covering the cost of fuel. The issues mentioned above regarding CO2 emissions, Benefits in Kind and Capital Allowances become irrelevant.

This then has become the simplest and often most tax efficient way for small business owners, whether they are sole traders, partnerships of ltd companies, to own and fund a vehicle.

I recently advised a client to change the way in which his car was being provided and by making the changes he is saving almost £500 per month in tax, so a little thought can make a huge difference.

The decision as to what car, who owns it, and how you buy your next car does not have a simple answer because there are so many variables: