Navigating Company Car Taxation in 2024/25

Today, we’re diving into the complex world of company car taxation, shedding light on what UK entrepreneurs and small business owners need to know for the fiscal year 2024/25.

Understanding the Car Benefit Charge

When an employee enjoys the luxury of using a company car for personal reasons, it triggers a taxable benefit. This benefit extends further if the employer also covers the cost of fuel for private travel, except in the case of electric cars.

The taxable amount hinges on two main factors: the list price of the car and its CO2 emissions. The charge represents an ‘appropriate percentage’ of the list price, adjusted for employee contributions and periods of unavailability.

It’s crucial to note that the list price isn’t necessarily what the employer paid for the car. This can result in a higher taxable amount, especially for second-hand purchases. The list price includes the cost of any optional accessories, minus any capital contributions by the employee (up to £5,000).

The appropriate percentage varies based on CO2 emissions, ranging from 2% for electric cars to 37% for cars emitting 160g/km and above. For cars emitting 1 to 50g/km, the percentage also considers the electric range, as outlined in the table below:

CO2 emissions Electric range Appropriate percentage
1 to 50g/km More than 130 miles 2%
1 to 50g/km 70 to 129 miles 5%
1 to 50g/km 40 to 69 miles 8%
1 to 50g/km 30 to 39 miles 12%
1 to 50g/km Less than 30 miles 14%

For emissions between 51 to 54g/km, the appropriate percentage is 15%, increasing by 1% for every 5g/km rise until reaching the maximum charge of 37%. Diesel cars not meeting the RDE2 standard face an additional 4% charge, capped at 37%.

After applying the appropriate percentage to the list price, adjustments are made for periods of unavailability and any employee contributions. Let’s illustrate this with an example:

Example:

Lucy receives a company car on 1 May 2024, a petrol car emitting 60g/km with a list price of £35,000. The appropriate percentage for this car in 2024/25 is 17%.

The calculated benefit amounts to £5,950, but it’s reduced by £408 to account for the car’s unavailability until 1 May. Thus, the taxable benefit for Lucy is £5,542. For tax purposes, this translates to £1,108.40 for a basic rate taxpayer, £2,216.80 for a higher rate taxpayer, and £2,493.90 for an additional rate taxpayer. Additionally, the employer incurs Class 1A National Insurance of £764.80 (£5,542 @ 13.8%).

The Fuel Benefit

If the employer provides fuel for private use, a separate tax charge arises, except for electric cars. This charge is calculated by multiplying the appropriate percentage by the yearly multiplier, set at £27,800 for 2024/25.

However, this charge can be avoided if the employee reimburses the full fuel cost before specific deadlines. The advisory fuel rates aid in determining the amount owed by the employee.

Take Action Now

Understanding company car taxation is crucial for effective financial management. For personalised advice tailored to your business needs, contact Jon Davies Accountants today. Let us guide you through the complexities and ensure compliance with HMRC regulations.

 

 
 
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