Why the company car remains such good value

Why the company car remains such good value

Posted by

Martin Brown

April 2016

company-car-blog

Tricky how to put this…but I suspect those of you who run a company car will find the taxman has lightened your salary a smidge come the end of this month.

Larceny? Perhaps.

It’s only right to pay your due tax? Probably. Or time to get out of the company car? Hmmm… Possibly not.

But first, why more tax? Simply the company car tax tables have tightened the tourniquet on CO2 emissions with it being a new tax year: if you are driving a diesel company car with 119g/km CO2 (the average emission level of all new Fleet Alliance ordered cars last year), the benefit in kind tax banding will have risen from 21% to 23%.

Does more tax take make the company car a less valuable part of your employment? An interesting point to consider. But I don’t think so.

Let’s rewind to 2002 when the graduated CO2 emissions based company car tax system was introduced.

Remember those changes?  That was when the company car tax system was graduated according to your company car’s carbon dioxide emissions.  It was a real shock at the time.

Looking back, Volkswagen had the answer to these changes with the Passat. If I’d gone for a 1.9-litre TDi diesel version, I’d be looking at 154g/km and an 18% charge. For a 22% taxpayer at the time, this would equal a £638.75 benefit-in-kind tax bill, or a £1,161.36 bill for a 40% taxpayer.

Spin forward 14 years and what do we have? More efficient engines, safer cars, and the Passat remaining a great company car choice, particularly in something like Business SE trim. With a five-star Euro NCAP crash test rating and equipment that a company car driver could only dream of in 2002 (think Bluetooth connectivity, Sat-Nav and safety kit), if you choose the 150PS 2.0-litre version as your company car, the emissions are just 106 g/km with a 21% charge.

Now it’s true that both the BIK banding and tax bills have risen during the intervening years, but at just £34 year for a 20% tax payer. Which in percentage terms is less than the price of a pint over the same period (don’t splutter into your ale!).

But the good value of the company car in terms of its benefit in kind is only part of the value equation. Have you thought about the hidden benefits of a company car?

If you were to opt out of your company car and take a cash option, there’s no business insurance, maintenance agreement, road tax, roadside assistance or if the worst happens, repairs and replacement for when your car is out of action, to pay for.  All of which you’d be liable for if you ran your own car. And remember, if your car is out of action, it would be you footing the bill for the daily rental car replacement if you needed your car for business.

So while no one likes to pay more tax than they need, the company car remains a highly efficient and good value way of driving a car.

And to keep it that way, and minimise future tax increases, I suggest you potentially consider an ultra low emission vehicle – that way you can keep a cap on benefit in kind when the time comes to change your car. It seems many of you are already: in the first quarter of 2016, plug-in cars reached a record high with 115 electric vehicles being registered each day.

It’s the way to ensure your company car continues to be great value.


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