When a business decides to provide its employees with a company car, there are other many things to consider than just how much the vehicle will cost.
The biggest one is how you choose to fund your vehicle, or fleet, as different options present different tax advantages.
There are many ways to fund a business car such as the traditional outright purchase, lease purchase with a final balloon payment and hire purchase.
If you are not precious about actually owning the vehicle – with leasing you never actually own the vehicle until the finance has been paid off – then leasing is a great option.
In this instance, businesses can declare the car as an asset and the depreciation is written off against taxable profits.
Depending on circumstances, some companies can even claim tax relief on any interest paid over the duration of the finance agreement.
But unless the vehicle is 100% used for business purpose, the company cannot claim back any VAT on a purchased vehicle.
Contract hire presents an extremely viable option to make company cars tax efficient.
A proportion of VAT can be reclaimed with contract hire, which is an automatic saving in comparison to purchasing the vehicle outright.
With a contract hire agreement, you can claim back 50% of the VAT on the monthly rental charges. However, if the vehicle is used exclusively for business purposes then you can claim back 100% of the VAT.
And you can also claim back 100% on any optional maintenance packages you choose to include, regardless of the vehicle’s use.
Depending on your vehicle emissions, you could also be able to claim the monthly rental against corporation tax.
If your car, or fleet, choices are below the 130g/km CO2 emission mark, you can claim 100% of the monthly rental against corporation tax. If your emissions are above this mark, your allowed rental percentage is 85%.
You can also make savings on your National Insurance contributions if you choose the leasing route.
Although employers must pay Class 1A National Insurance contributions on the benefit in kind value of employee’s company cars, the lower the CO2 emissions of the car are, the lower the NI payments will be.
So, what’s the best advice we can offer on the most tax efficient lease deals?
Steve Black, account manager at CVSL, answered: “Go for a car below 130g/km – even better below 100g/km – and you can make some real savings!”
“Don’t be put off by what people tell you about low emissions vehicles – they are not cheap and cheerful cars. The Audi A3 hatchback is a great example of a glamorous executive car that emits just 99g/km CO2.”
“And not only are there tax benefits, you are also improving your green credentials.”
Call CVSL today on 0800 085 4256 to discuss the best option for you and your business; we’re here to help.