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Company cars are in their dying days

13th Nov 2014
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The company car is being taxed out of existence, whether you’re going for a low emissions or high emissions vehicle, and it’s just not worth it anymore, says Rebecca Benneyworth.

AccountingWEB caught up with Benneyworth to discuss how she had come to this conclusion following the last Budget announcements.

She said it wasn't a marked change on one day, but we’ve now got figures through to 2018/19 as the government announce them early and then legislate the following year.

“Basically it’s the direction of travel, forgive the pun,” she said. “What’s going to happen is that tax on company cars is set to rise really quite markedly over the next few years. Oddly, it’s perverse, but almost the worst to lose out from it are people who have gone for a low emissions car.”

Benneyworth first gave an example of her convertible Smart car, which has a conventional engine with quite low emissions, to explain her point. It emits 82 grams CO2 per kilometre and is currently taxed at 11.5% of list price.

“It’s a moderately cheap car to buy brand new, and I actually bought it because it’s very low emissions - that was why I wanted it. But by the end of the period we’ve got figures for - that will be taxed at 19% of list. So my benefit in kind is almost going to double,” she explained.

To illustrate the point further, Benneyworth turned her attention to the Nissan Leaf, which is a fully electric car.

She explained that as a company car and if you’re doing a lot of miles, then it’s got some major limitations because the range on it is not that brilliant. But despite a £5,000 government grant towards buying one, the other downside is electric cars are so much more expensive and you are taxed on the full list price.

However, she said that at the moment you would be paying zero benefit in kind, and by that same date, it will shoot up to 11%.

Another example is the Vauxhall Ampera, a popular fleet car, which is a very efficient hybrid that only emits about 30 grams CO2 per kilometre. Again it has a high list price, but the benefit in kind is basically shooting up in the coming years.

Benneyworth said perversely the only people who are not seeing huge rises in their tax bills having a company car are those people who have got a big car, such as a Range Rover.

“Alright they are paying a lot of tax, but theirs isn’t going up, because they’re off the top of the scale already,” she said.

In terms of the amount of money all is going to cost, Benneyworth said one of the Budget tables showed an extra £250m a year in car tax as a result of the rises.

The solution

Benneyworth said the solution to this issue, and particularly if you’re an occasional business driver, it really is give up your company car and charge 45p a mile for your personal car. “That really is the only sensible solution,” she said.

It’s an even tougher decision for someone who does a lot of miles.

“For someone like me who does a huge number of business miles, the 45p a mile plus 25p after 10,000 isn’t really going to cover the business motoring costs because of the depreciation on the car.

“If they buy their own car to do that in, they’re going to lose money hand over fist. But to have a company car they will pay so much tax that you sort of wonder what’s the home for them? They’ve lost out and all they do is drive for work.”

The answer, she reluctantly said, is probably a van.

“Because the benefit in kind for that is only just over £3,000 and if they are doing silly miles, i.e. doing 50,000-60,000 miles a year, then leasing is out so you’re not left with a lot of choice. It’s those drivers that I feel extremely sorry for, because they don’t really have a natural home and probably a van is the only thing for them,” Benneyworth said.

She added that there probably wasn’t much of an actual benefit in the normal sense of the word, to somebody who’s got a company car and is doing that many miles.

“And yet they are being taxed an absolute fortune for it. The writing is on the wall really and I feel very sorry for these drivers. There is almost a policy blind spot there. In order to do business some people have to drive. What we’re going to do is tax them into a position where give up their job.”

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Replies (10)

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Nigel Harris
By Nigel Harris
13th Nov 2014 14:22

Try a van!

I had been telling clients to consider double cab pickups for years, so when I changed my company car a couple of years ago I tried one myself and haven't looked back since (difficult anyway as you can't see out of the back window!).

Fuel consumption is pretty good, around 37mpg the way I drive it. In rural Somerset it's pretty handy when the roads are very wet or icy, and if it snows I'm one of the few people who can get down the hill to our office.

If you go for a top of the range model the have all the executive car comforts, so it's quite comfortable on long journeys. They do charge double the car rate to cross the Severn Bridge though!

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Replying to DJKL:
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By MattG
14th Nov 2014 13:26

Double cab, yes please!

nigel wrote:

I had been telling clients to consider double cab pickups for years, so when I changed my company car a couple of years ago I tried one myself and haven't looked back since (difficult anyway as you can't see out of the back window!).

Fuel consumption is pretty good, around 37mpg the way I drive it. In rural Somerset it's pretty handy when the roads are very wet or icy, and if it snows I'm one of the few people who can get down the hill to our office.

If you go for a top of the range model the have all the executive car comforts, so it's quite comfortable on long journeys. They do charge double the car rate to cross the Severn Bridge though!

I'll admit that one of the reasons on my list for incorporating is so I can get a double cab cheaply, really can't justify it in the slightest, I just want one!

I suppose the reverse of that is that for small businesses this is something to factor in when considering incorporation - if travel is a large proportion of your costs then what is the impact of incorporating? I looked at this recently for a client in this situation and the loss in claimable expenses, going from 45p per mile + the HP interest/full motoring costs apportioned, to just 45p per mile wiped out any NI saving left after factoring in higher accounting fees etc. It wasn't the only factor at play but it certainly helped tip the balance.

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By AndyC123
13th Nov 2014 18:28

I agree with Rebecca

The creeping increase of the % of list price seems unjust.  There's nothing you can do once you have the company car (unless HMG expects you to swap your car every year to a more efficicient model).

It's not unlike VED where the cost can exceed the value of an older car.  Again, what do they expect you to do, spend 000s on a newer car to save 00s on road tax?

 

Little talk of equity, fairness and the spirit of the law from HMG & HMRC!

 

 

 

 

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By memyself-eye
14th Nov 2014 09:55

it has always been iniquitous

that the BIK percentage is worked out on the list price - £7,750 in our case rather than the actual sale price - £5,999.

Time to ditch the car methinks.

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By thomas34
14th Nov 2014 11:57

Company Cars

The iniquitous regime of scale charges on company cars is nothing new - it's simply that it will in future force even more people into ditching them once and for all. My advice to clients in 99% of cases (and has been for at least 10 years now) is to use their own car and charge their employers the approved mileage rate. I don't deny that there may be cases where the mileage rate doesn't cover the depreciation where very large distances are travelled but in the majority of cases it's the lesser of two evils.

The important part of the equation is the likely private mileage to be incurred including the taxpayer's location in relation to his workplace. If the taxpayer regularly travels from the south coast to John O' Groats on holiday (or to the south of France) a company car may be beneficial. What is evident is that the regime penalises hard working taxpayers who have limited time to drive their families to these far flung places.

 

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By Ewan Simpson
14th Nov 2014 17:44

Or a car derived van?
If you don't need the rear seats, try a car derived van. I've been deriving a fiesta sport van for year and getting 55mpg.

The first years insurance was ridiculous but on renewal it halved.

Also don't use it to take rubbish to your civic amenity site - ours charges for vans.

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By Nebs
14th Nov 2014 15:43

It's not just cars

The number of my "smoker" clients who have turned up this year with electronic cigarettes suggests that this source of government revenue is going to take a substantial hit.

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By armstrm
14th Nov 2014 23:30

Don't mention that to HMRC

Smokers switching to e-cigs may end up being dubbed tax avoiders, immorally  depriving the government of much needed tax revenue.

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Teignmouth
By Paul Scholes
15th Nov 2014 00:06

Maybe it's all about breaking the habit

of using a car to get from every A to every B?  I think people with company cars are more likely to use them for unnecessary car journeys than they would their own?

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By J T
21st Nov 2014 16:08

I think the figures don't stack up with the story.

"If you do silly miles 50,000-60,000" then it won't cover the depreciation...

60k would give you £17k in contribution to your costs if you claim mileage. Even at todays silly prices the fuel would be £9k at 40mpg.

You wouldn't need to worry about depreciation you can buy a car or two each year for the remaining £8k.

Obviously if your looking at a shiny new car as a perk then you can't, which is why its taxable and when I get offered one I will take it

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