February 15, 2018
How does leasing a business car work in terms of tax – is it efficient? Will I be stung on my P11D?
Leasing a car through your company is, in most cases pretty bad from a tax point of view. The exception to this is where the car is extremely low for co2 emissions. The company will get tax deductions for the monthly payments but can only reclaim half the VAT. If your company is on the Flat Rate VAT scheme, then no VAT can be reclaimed so bear that in mind. For the employee you get taxed on the full list price including all extras, multiplied by a percentage which gets higher depending on the co2 level. It goes up to 35% for high levels of co2. Diesels get charged an extra 3% too. Over a number of years this can result in you being taxed on a much higher value than the price of the car.
It does go on your P11D and you would be charged at your highest rate of tax. So, a £25,000 car at a 30% rate would get an annual benefit of £7,500 and at 40% tax would pay £3,000 pa. The percentages do increase from one year to another as HMRC tries to encourage people to use lower co2 emitting cars, so tax can go up. Also, the company gets charged 13.8% Employers NI on the benefit. So that would be £1,035 pa on the £7,500 example.
However, it is different for hybrid and electric cars and we will cover this in another #AskTheAccountant
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