Being a woman in business is all about finding ways to make things work for you, and that includes how you get from A to B. The key is to do it in a way that is reliable, efficient, and highly cost-effective. The problem is that something that sounds simple like a company car can cause headaches if you don’t know the basics.
To make sure nothing is missed, we’re going to bring you up to speed and talk you through how you can take advantage of our proven tax hacks.
What is a company car?
Whenever a business provides a member of staff with a car as part of their benefit package, they have a company car. The car can be used for both business and pleasure as outlined in the agreement, with specifics like the make, model, and mileage to be agreed between the two parties.
The important thing to note here is that HMRC considers your new company car to be a ‘taxable benefit’ which means they will charge you tax on it. The name of the tax is BiK and getting to know how it works is really important.
What is BiK?
Benefit in Kind (BiK) is the name of the tax that is applied to any perks and benefits that your employer gives you in addition to your salary. You will also see BiK referred to as ‘company car tax’ when you’re searching for information online.
If the car is given to you by the company or is provided as the result of a salary sacrifice agreement with the company, you will be responsible for paying BiK. But rather than turn down the offer and dismiss it out of hand, let’s take a look at how much BiK is and how you can reduce it.
How much is BiK?
BiK is calculated using three key numbers and is designed to reward businesses for choosing eco-friendly hybrids and electric vehicles:
- The CO2 emissions that go into the atmosphere are factored into the equation with greener vehicles paying less BiK
- The total value of the company car (sometimes called the P11D value) is also taken into account
- Your income tax band: you will pay 20% of the car’s value if you are in the 20% income tax bracket and 40% if you are in the 40% income tax bracket
HMRC sets the BiK rate like this to try to make company cars more accessible to more junior members of staff who will typically be on lower wages. The idea is to allow people to work their way up to higher-paying positions within the same organisation. BiK is collected through the standard PAYE tax that is deducted from your gross pay at the end of each month.
Now you know what it is, it’s time we looked at how to reduce BiK with a few of our smart hacks.
The low-emissions hack
The government is actively pushing eco-friendly transportation by reducing all manner of taxes and levies on hybrids and EVs. A great example of this is how you can easily qualify for significantly reduced BiK payments when you go down the Hybrid Range Rovers Leasing route.
Lower emissions mean less tax to pay on your company car, with the total discount determined by two key factors. The electric-only range of the hybrid and the average CO2 emissions into the air both need to be factored into the equation. If you are offered a hybrid company vehicle then it will be cheaper to tax and cheaper to run thanks to the reduced fuel consumption. Ideal when you want to make getting on the corporate ladder work for you in more ways than one.
The personal leasing hack
You can ask your employer for a car allowance instead of a company car. This is where the cost of leasing the car in your own name is added to your salary. You then pay PAYE on this salary increase but avoid backing BiK on all business use of the car. The problem is that personal use is something of a grey area and can fall under the umbrella of BiK. There is, however, the option to claim back the VAT on the monthly payments to offset this.
As you can see, the personal leasing hack quickly gets complicated when you compare it to the low-emissions hack.
The equity building hack
Okay, so this is really just having your own car and doesn’t qualify as a company car. If you go to a dealership that wants to sell you a car right then and then, they will talk about how every repayment you make to the finance company gives you more equity in the vehicle. While this may sound attractive, cars don’t appreciate in the same way that property does.
Yes, by owning your own car you can sidestep BiK altogether, but this comes at the cost of being stuck with an asset that will depreciate by half in less than 2 years. If you want to make your company car work for you, we recommend looking into leasing a hybrid with help from a car leasing specialist.