Company Car Tax Explained UK | How Do Company Cars Work?

Everything you need to know about company car tax, benefit in kind (BIK) and car allowances. The UK company car tax system can be very confusing, in this video I explain how company car tax works, show how to calculate the benefit in kind tax and also discuss the tax differences between a company car vs car allowance.
The Benefit in Kind is calculated by taking the vehicle’s P11D value (list price + optional extras, VAT & delivery) and multiplying it by the BIK % (which is based on CO2 emissions and fuel type).
At the moment the most tax-efficient company cars are electric vehicles (EV's) such as Tesla's as the benefit in kind on these is currently 0% for the tax year 2020/2021. This will increase by 1% a year for the next 2 years, however, the BIK on these vehicles will remain very low.
Employees may be offered a car allowance as an alternative to a company car. This is subject to Income Tax & National Insurance instead of BIK Tax.
If you own a LTD business and are considering a company car, I would highly recommend avoiding high emission cars. As both the owner and employee of the business you will face double taxation - BIK tax as an employee and Class 1A National Insurance as the employer.
Alternatively, many business owners choose to take advantage of (Mileage Allowance Payments) instead of a company car as this allows you to charge the business 45p per business mile for the first 10,000 miles and 25p per mile for anything above this. This payment is tax-free, isn't subject to benefit in kind and the business can offset it against corporation tax.
Also, as a business owner, it should be possible to get a car lease tax deduction on 100% of the vehicle rental providing the CO2 of the vehicle is below the LLR (Lease Rental Restriction) threshold. If it is above this then only 85% is available to offset against corporation tax. The LRR is currently 110g/km in 2020/21 but drops to 55g/km from April 2021.
If your business is VAT registered then it should be possible to reclaim 50% of the VAT (if the vehicle has any personal use, including commuting) or 100% if the vehicle is strictly business usage.
These are the links I mentioned in the video:
• P11D, CO2 and BIK Search: comcar.co.uk/companycar/tax/s...
• Company Car Benefit in Kind Thresholds: www.fleetnews.co.uk/fleet-faq...
Are you considering a company car such as a Tesla or other zero-emission EV - let me know in the comments!

[@HonestMoney]

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[@kysonbruce1767]

InstaBlaster.

[@adamcopley7418]

Your the first channel I've seen with a proper breakdown with examples, thank you so much Tesla here I come

[@Participant616]

What a great video, so clear and understandable.

[@edisonmoreno7098]

this channel is the bible of UK regulations, great job mate!

[@jenil5526]

Thank you so much. working on my EE for economics exactly on this

[@andredeoliveira4125]

Well done great video. The best i could find from UK 👍 Would be nice if you can make a video on how to buy a car in the business name, including credit line criteria etc

[@DP-bo4yw]

Excellent explanation. Thanks very much.

[@Darlington-Properties]

Great video as always, thanks 👍

[@christophergrubb3555]

You're a legend. Thank you so much for this.

[@lastofthefamous2542]

As a limited company with only one employee. ( myself) What is the best way to have a vehicle, is it to buy outright and use it as a depreciating asset , is it to lease ? Bearing in mind that working construction and it's always a bit bit iffy with recession on the way.

[@danhall5761]

Too many variables to answer.

[@interflat6692]

Brilliant video

[@evilutionltd]

Nice one. The reason I Became a LTD from being a sole trader for years is because I want a Tesla. Registered 2 days ago and looking into what I can do. Your videos have been invaluable.

[@ayres6727]

did you get it?

[@arco5988]

Spot on Darren, once again!

[@spikeymathew]

Really good video! Thank you. Could you do a video going into more detail of how a director may go about leasing a hybrid or fully electric car, through their company or the best way of doing it ? Thank you !

[@HonestMoney]

You may find this video useful, it answers a lot of general car leasing questions: kzbin.info/www/bejne/kJ62aoCYa9mKp8U

[@harrytrueman4216]

Awesome video, that explains why most contractors have electric cars. Now from the company perspective is the 30k a capital payment?

[@aaryanpour]

Thank you, That was exactly what I needed. VERY informative. Can I suggest a video on "Leasing a Company car" ?

[@HonestMoney]

You may find this video useful, it answers a lot of general car leasing questions: kzbin.info/www/bejne/kJ62aoCYa9mKp8U

[@plumberhosegood8296]

A great video and really helpful. I'm thinking of buying an electric estate car to use for work. As a vat registered limited company, am I correct in thinking I can claim 50% of the vat back and put the full value of the car against corporation tax?

[@mrmutrag]

Great video Darren, A quick question about FYA for Electric Vehicles....If you claim a 100% FYA can you then claim a Writing Down Allowance on the vehicle in subsequent years? If so, how do you work out the 2nd year value?

[@LA-fr7fx]

Thank you

[@mikewhitehurst8394]

Hi Darren, could you do a video explaining how to, and the tax implications when using profit from one Limited company to purchase another (separate) Limited company?

[@HonestMoney]

That sounds like a good video, unfortunately it's a topic I don't have any experience with 👍

[@devanclarke-sheward3861]

Great video, how does it change for a company van? and does the BIK change if you still own a personal car? helping to support the van is 100% business use. Thanks

[@pjroberts2010]

Firstly, I applaud your many helpful videos; they have truly been beneficial. I have one question: Do charging stations for EVs log data when used, making it easy to provide proof to the HMRC, when charging at home?

[@lolcatmaroon]

Great video! If one is a director of a LTD, but does not draw a salary, what is the best option to get a car using the funds in the company? I've never drawn a salary as we started just before Covid and I can't afford to pay myself! It would be personal and business use and doesn't have to be an EV. Thanks!

[@gladmaxgroup5038]

GOOD

[@abdulkadir2396]

thinking about getting an ev for next year maybe do you know this situation to claim back for charging ?

[@alan-muscat]

You mention the potential savings on a car through VAT, but what about VAT when you come to sell it? (In my case I don't wish to lease).

[@allaroundthemetaverse-nftg725]

Can you do an updated 2021 version?

[@a.spaintingcontractors8897]

Can u do one on car finance from Limted company

[@ChrisMarkey-ur3oo]

Thanks for the video. Can you explain how the £40k tax value effects BIK, or doesn't it? I'm in the process of picking a new company car butP11D value £38,900 with some options the P11D value will be £40,150. Will this change the amount of tax I pay? I can't seem to find a straight answer anywhere online

[@SupermanPk1994]

So…. I have been offered a company car, after looking into the BMW i4, 2% BIK, and 20% tax bracket…. It shows only £18 a month??? Is this the only cost to me, or do I pay a month leasing agreement too?

[@alexclarke7270]

I'm currently trying to get my head around this whole process right now. I have a £485 cash allowance (gross) or £320 if I choose a company lease. The car I am looking at has a high BIK % and the cost is £311 per month. Does the £320 allowance cover this or am I still going to pay in additional tax. I think I know the answer but clarification would be appreciated 🙂

[@joechristopher338]

As an fba seller can I get an electric company car and pay no bik tax? Also as you know with fba the use of the car for the biz would be really low. So can I still get one and claim 50% VAT?

[@harrytrueman4216]

Hi can you make a video on buying an electric car wholly via Ltd company for 22-23 year or suggest a good site or video? Ta

[@garethfitzpatrick5894]

My wife has been offered a company car and she is looking at a plug in hybrid. Will she be paying anything towards the car on top of the BIK tax or is that all that will be deducted from her wage?

[@tonysmith5812]

I have a company car that is now 5 years old. Do I get any reduction in tax because it is now an older vehicle?

[@alansmith3733]

Great video! As a company director am I right in thinking I can pay myself 45p a mile car allowance tax free? So if I lease a vehicle privately and do 10,000 miles i can pay myself £4,500 tax free?

[@TimPlowright]

Hi Darren, if you are the director of the Ltd company on a salary below £12k (excluding dividends) do you still pay BIK and NI on the costs of the car as you are below the 20% threshold??

[@johnmcalinden3615]

Can you contribute towards a pension tax free, or can your company do it on your behalf?

[@ipprp7898]

I recently had my Ltd company I want to buy a car via company , I didn’t take any salary or dividends from it as I want to leave it grow.. I’ve heard that if I buy a car via Ltd, the company need to be PAYE registeed “payee” and submit monthly to HMRC ? Many thanks

[@rickiehoxton]

I understood that a company can claim depreciation on a car it owns. How do you factor that into the calculations?

[@HonestMoney]

Take a look into capital allowances, I think that is the best route if you buy a company car 👍

[@RespawningIn9]

So those calculations at the end: that’s the tax you’d pay, on top of the lease/payments for the car on a monthly basis? So as an example if I were to lease an EV car, through a ltd company for, say, £300pcm I would pay £0 tax on top, but, ~£115 tax a month on top of regular car payments of similar value?

[@HonestMoney]

Correct 👍

[@ayres6727]

hi tom, did you get it? I need some help

[@snuggleseal]

What if the company buys a used car value approx 3k? 190g/co2

[@danhall5761]

Surely it’s just Cheaper to give it to the employee than paying the tax?

[@lukadabuca]

Are you an accountant?

[@lakun76]

@Shamima Begum and mi6 agent

[@HonestMoney]

@Shamima Begum 😂😂

[@HonestMoney]

I'm not an accountant, otherwise I'd be charging you for less helpful advice 😂😀😂

[@matthewharvey9725]

I'd check out Accounting & Tax Academy for real accountants!