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Are Company Car Scheme's As Good As They Used To Be?

Getting A Company Car Used To Be A Real Advantage For Your Motoring Costs. But With Changes To Company Car Tax, Are You Still Better Off With A Company Car?

Jul 14, 2014

Over the last few years, lots of changes have been made to the tax regime for company cars. This means that, for many people, the benefit of having a company car isn’t quite as good as it has been in the past.

The Daily Telegraph says that ‘there is no “one size fits all” answer’ and that your own circumstances will decide whether a company car is the right decision for you. However, there are a number of compelling reasons why a company car is still a great choice. Keep reading to find out more.

You can get more car for your money

A company car is a great perk of any job. You get a new car for your exclusive use with insurance, maintenance and servicing included.

However, as soon as you use a company car for a personal reason – and that includes driving to and from work – HMRC view that as a taxable payment, or ‘benefit in kind'. This means that you have to pay tax on the value of the benefit.

Here’s a simple example. If your car has a P11D value of £20,000 and a company car tax rate of 20 per cent you will have a ‘benefit in kind’ value of £4,000. If you pay higher rate tax (40 per cent) your company car tax on this vehicle will be 40 per cent of £4,000 – £1,600 a year.

Many people choose to take a cash alternative rather than run a company car. However, this can leave you worse off. Handing back a car that costs £265 a month in company car tax will typically add around £5,500 to your annual salary.

Once you pay tax on this £5,500, a 40 per cent taxpayer will have just £3,300 a year to spend. And, from that you'll have to pay your own insurance, maintenance and road tax.

All this means that, depending on your circumstances, you may get more car for your money if you choose a company car rather than a cash alternative.

Company cars can be less hassle

If you don’t want to have to deal with all the hassle of owning a car then a company car offers many benefits. In principle, choosing a company car involves less research and planning and, when you drive a company car, your employer's lease company will take care of all the housekeeping, too.

What Car? says that ‘this lack of effort can justify the cost of company car tax on its own.’

You can choose a more efficient car to save money

The amount of tax that you pay on your company car is partly determined by the carbon dioxide emissions of the car. Simply put, the lower the CO2 emissions of the car that you drive, the lower your tax band. And, until April 2016, you also pay less tax on petrol than diesel cars.

If you drive a company car you can reduce your tax bill – and make driving one more attractive – by choosing a car with low emissions. As the list price and CO2 emissions are integral to the tax calculation you can control how much this tax will be simply by choosing the right make and model.

You don’t have to worry about depreciation or selling it

When you buy a car outright one of the major disadvantages is that you will have to bear the cost of depreciation. Jon Morgan, consumer editor at Auto Express, says: “We recently looked at the amount different cars lose 24 hours after you buy them. In one case it was 50 per cent overnight.”

New cars can lose up to 70 per cent of their value in the first three years meaning that when you come to sell your car you may have lost thousands of pounds in depreciation. In addition, when you own a car you have the hassle of selling or part-exchanging it when you decide to change your car.

When you drive a company car you have none of this hassle. You can choose a new model every three to four years and, at the end of your contract, you simply hand the car back.

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