The issue is not a simple one, so let's break it down:
Personal tax- Benefit in Kind
If you have a car paid for by your limited company or employer you pay tax on a calculated benefit in kind (BIK)
* BIK is based on the list price of the care when new, plus any added accessories. (Buying second hand does not reduce the BIK unfortunately)
* A percentage of the list price is calculated, based on CO2 emissions of the car. In 2020/21 tax year cars with CO2 above 160g/km this is 37% of list price, and if fully diesel a further 4% added to the rate You can check the CO2 rating at https://www.gov.uk/co2-and-vehicle-tax-tools
* If private fuel is also provided a further BIK arises being £24,500 x the percentage. This calculation can cost more in tax than the private fuel actually provided, so it is often best not to provide private fuel at all
* You can use the HMRC calculator at http://cccfcalculator.hmrc.gov.uk/
* The tax you pay will be the amount calculated as a BIK and paid at your highest rate of tax, so that could be 20% but often at 40% as it is added to your salary and any other income
* The business will pay Class 1A national insurance on the BIK value in July each year at 13.8%
The GOOD news is that the Government are keen to see a shift to electric and hybrid cars and so BIK rates are very low on these types of car
Cars that were registered after 5.4.20 are taxed at the list price multiplied by the following percentages:
0 (zero) emissions = 0%
1-50g/km depends on the vehicles range under a single electric charge:
130 or more= 0%
70-129 = 3%
40-69 = 6%
30-39 = 10%
Under 30 = 12%
These are all lower rates than for cars registered pre 6.4.2020.
Capital Allowances
The company can claim relief for the capital cost of buying a car. Please note that VAT can NOT be claimed on cars.
Currently cars with up to 50g/km are entitled to 100% capital allowances in the year of purchase. For example £25,000 car cost, reduces taxable profit by £25,000 saving £4,750 in corporation tax at 19%. This comes to an end 31 March 2021 and will then only apply to Zero emissions cars for a further 4 years.
Also from 1 April 2021 cars emitting more than 50g/km will be included in a special pool for capital allowances (current limit 110g/km) and allowances of only 6% can be claimed on a reducing basis, taking approx. 36 years to cover the full cost of such a car!!
If you are looking to buy a low emission car for business then you should look at doing this prior to April 2021.
Company cars remain a complex and emotive subject. If you would like specific guidance please get in touch.