Tax and the company car pt 2

Tax-free benefits

    Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

    Pool Cars

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others.

Please note: A pool car must not normally be kept overnight at or near an employee's home.

Business use of an employee's own car

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own cars.

A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:

Cars and vans
On the first 10,000 miles in the tax year 45p per mile
On each additional mile above this 25p per mile
Motor cycles 24p per mile
Bicycles 20p per mile

It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Note that the lower rate for more than 10,000 business miles only applies to income tax. The national insurance rate remains at 45p for any number of miles.

Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D (now possible through RTI payrolling).

Passenger payments

When an employee travelling on business carries fellow employees as passengers he may be reimbursed a further 5p per passenger tax free provided the journey is a business journey in respect of the passengers. No claim can be made if the employer does not make passenger payments.

Company vans

The taxable benefit for the unrestricted use of company vans is £3,350 (with no reduction for older vans) plus a further £633 of taxable benefit if fuel is provided by the employer for private travel. Electric vans are taxed at 40% of the van scale rate (i.e. £1,340).

The tax payable on the use of a company van ranges from £268 to £1,792.35 a year, and the employer's class1A NICs payable ranges from £87.35 to £549.65 a year.

Use our calculator to check your van benefit

Tax-saving checklist

  • Keep adequate records of business mileage.
  • Always check your tax code to see that the correct benefit is being applied.
  • If you have low private mileage, you may be better off if you pay for all your own private fuel.
  • If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
  • Encourage your employer to apply for a P11D dispensation.

Company cars - beyond 2021

The appropriate percentage rates for 2022/23 have already been announced by the Government. Some headline information includes:

  • Fully electric vehicles (no CO2) will rise by 1% in 2022/23.
  • All fuel-based cars registered before 6 April 2020 will see no increase in the appropriate percentage rate during 2021/22 or 2022/23.
  • Fuel-based cars registered from 6 April 2020 and with CO2 emissions at 164 or below, will see a 1% increase in the appropriate percentage in 2022/23.