For owners of small businesses, taking out a company car can prove false economy - often creating more personal tax liability than it saves on the company’s corporation tax bill.
Despite rising tax charges year on year, many people still enjoy the convenience offered by a company car. The benefit in kind tax rules reward those who choose cheaper, lower emission cars with a lower tax bill.
Company cars are a popular benefit and are often something of a status symbol. But, they have also been an easy target for the taxman.
It is possible for a business to set the full cost of a car against profits in the year of the purchase if the car is a low emissions car that qualifies for the first-year allowance. A 100% first-year allowance is available in respect of cars that meet the definition of a `low emission car’ for capital allowances purposes.
A benefit-in-kind tax charge arises when a company car is also available for private use. The amount that is taxed in respect of this benefit is a percentage of the list price of the car when it was new. The percentage (known as the appropriate percentage) depends on the CO2 emissions of the car.