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So you’re running a recruitment business – congratulations. Is it worth investing in a company car?
If you were to ask any of the fantastic accountants we have here at Isotope, what one of the most common questions they get asked when supporting & advising our recruitment clients, it would be around the elusive company car.
While there isn’t really a straightforward answer (after all is there ever with accounts?..) here are 5 things you need to think about when exploring the option of putting that Aston Martin/Ferrari/Honda Civic (whatever suits you!) through your recruitment business.
The first stumbling block with putting a car through a business is that it will more than likely be classed as a benefit-in-kind, especially if the vehicle is left outside an employee’s residential address at any point.
It’s a stumbling block because of the way HMRC would view it. Essentially, HMRC’s decision to class a company car as a benefit is based on whether the car is available for personal use, not whether it is actually used for personal use. Therefore, if the car is parked outside your house – it’s safe to say that it would be difficult to argue that it isn’t available to you for any personal journeys.
So, on the assumption that the car is then classed as a benefit-in-kind, both the employee using the car and the company providing the car would be liable to pay benefit tax on it.
Now, the biggest negative and often the one that puts people off straight away, is knowing that when working out the benefit-in-kind tax, it is the list price of the car when NEW that is used.
That means if you own the car for 5 years, you are still being taxed on the price of the car from day one! I don’t care how good your Aston Martin (or Honda Civic) may look after 5 years, it’s just not the same car. So, if we were to simply take this hurdle in isolation, does it really make sense to opt for a company car?
So, let’s look at an example shall we?
During the current 2020/21 tax year, if you purchased an Aston Martin registered before 6th April 2020*, worth £30,000 (ha!) with CO2 emissions of 75g/km – it would give a benefit charge percentage of 20% petrol or 24% diesel.
With the benefit charge of 20% on petrol cars & 24% on diesel, this would mean that the benefit values would be:
– £6,000 for petrol per year.
– £7,200 for a diesel per year.
These values are then used for calculating both the company tax and the personal tax payable by the employee. It’s also worth noting HMRC do often review and increase the benefit charge percentages year on year, especially with trying to cut down on CO2 emissions.
So really, is it worth it?
After all, everyone loves a Tesla.
Now it’ll come as no surprise that Electric and hybrid cars do of course have a much lower benefit charge percentage so are more tax efficient in comparison, although there is still a charge (pun only slightly intended…) each year to the business and the individual.
Now you may have heard of something called a “Pool Car” & this is what I wanted to talk about here.
So although company cars do attract benefit tax to the company and individual, there is the option of purchasing a car to use as a “Pool Car”. Although, as with anything tax related, there are a few conditions you would need to meet in order to satisfy that the car is indeed a Pool Car:
· The car must be available and used by all employees of the business.
· The pool car must be left outside an office premise overnight (and shouldn’t be left outside an employee’s residential address)
· The car shouldn’t be used for any personal journeys – which includes commuting to and from the office.
We suppose the reality is, there is a lot to consider when exploring the idea of purchasing a car through the business.
Our feeling is in the majority of cases it probably just won’t be tax efficient to pursue. But like everything, this could change over time! So, if you had to push us for an answer right now, we’d say that, right now, perhaps don’t order that Aston Martin on the company card just yet.
But, as ever, we’d love to hear from you. Perhaps you have a few questions around company cars, perhaps your current employer is suggesting it to you & you’re a little unsure as to what to opt for OR perhaps you’re running your own recruitment agency right now & you need a sanity check before you find yourself walking into the next car garage you see!
Whatever is it, Isotope are here to help.
*cars registered from 6th April 2020 do have slightly different benefit rates. In the example above on 75g/km this would equate to 18% petrol and 22% diesel.
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