Ensure you consider all the options for delivering a car benefit.
Controlling costs is a common target for most businesses.
Ensuring the company is meeting its objectives and keeping employees happy with an appealing benefits package is a difficult balance, but it’s possible if you choose the right provider for your employee car benefits.
If you select the best solution for your company car entitled drivers, as well as for your non-entitled drivers, both you and your employees will be able to enjoy tax savings.
Company car tax explained
A traditional company car is classed as a taxable benefit, so both you and your employees will pay tax to provide and have access to that car.
This kind of tax is known as Benefit-In-Kind (BiK) as you’re providing an additional benefit to your employees on top of their salary.
There are two ways your employees can pay BiK tax: either a deduction at source (directly from their salary) and PAYE coding notice (HMRC reduces their personal tax free allowance).
Most employers inform HMRC of employee car benefits, however, it’s the driver's responsibility to keep them informed.
How much is Benefit-in-Kind tax?
A traditional company car is classed as a taxable benefit, so both you and your employees will pay tax to provide and have access to that car.
This kind of tax is known as Benefit-In-Kind (BiK) as you’re providing an additional benefit to your employees on top of their salary.
There are two ways your employees can pay BiK tax: either a deduction at source (directly from their salary) and PAYE coding notice (HMRC reduces their personal tax free allowance).
Most employers inform HMRC of employee car benefits, however, it’s the driver's responsibility to keep them informed.
For employers
- Determine the appropriate percentage of CO2 g/km according to the emission band and engine type of the vehicle.
- Multiply the percentage by the P11D value of the car, which includes list price, VAT and delivery charges, but not the first year registration fee or annual VED car tax.
- Multiply the total by the employer tax rate of 13.8% for Class 1A National Insurance Contributions (NICs).
For employees
- Take the P11D value of the car.
- Multiply by appropriate percentage of CO2 g/km, which and can be anything as low as 2% for a pure Electric Vehicle (EV) or more than 37% for a car that creates more pollution.
- Multiply the calculation by the employee marginal rate of tax (MRT) whether than be 20%, 40% or 45%.
Both of these calculations will provide an annual total of tax that would be payable.
You can view the latest rates on the gov.uk website here.
How to make savings
Employee Car Ownership Schemes (ECOS) give you and your employees the benefits of a company car without the associated tax burden – increasing flexibility, improving controls and generating savings.
With ECOS, the ownership of the vehicle passes to the employee when the car is delivered. This means that BiK tax and Class 1A NICs are not applicable. You deduct a fixed amount from your employee’s net pay each month to contribute towards the running costs of the car.
Additional benefits of ECOS
- Create material savings for your business and your employees - and decide how these are distributed and utilised.
- You’re in control. We’ll work with you to create a car benefit policy and help you maintain it, saving you admin and resource.
- Save your business funds for what makes you money, with CBS providing vehicle funding, authorised and regulated by the Financial Conduct Authority.
Take advantage of low BiK on EVs
Salary Sacrifice Cars allow your employee to give up some gross pay in return for a brand new EV. With the taxable salary amount reduced, your employees will make savings on income tax and NICs, and your business will save on NICs too. However, BiK tax will be applicable for your entitled drivers, as the vehicle will be classed as a company car.
Choose a provider which can offer all solutions
There isn’t a one size fits all when it comes to providing employee car benefits. We’ll help you determine the best set-up for your business with our full solution management that is included as standard for all our employee car benefit solutions.
Get in touch today to ensure you’re delivering a car benefit to your employees in the most efficient way for your business.