How about a Classic Car as your Company Car?

Most people who have had a company car available to use as their private car know that there can be a hefty tax bill to pay. This is particularly true when the car is not “green” and the manufacturer’s list price is expensive. Diesel engines and high CO2 emissions will also increase the benefit in kind figure.  Therefore, electric and hybrid cars tend to be the more tax efficient option for company cars.

So why would you consider an old and inefficient classic car if the employee’s or director’s tax liability would be higher?

HMRC’s definition of a classic car is one where:-

• the car is more than 15 years old
• the market value is £15,000 or more

In this case, the higher of the market value of the car or the list price is used to calculate the benefit in kind.

However, if your classic car has a market value of £15,000 or less, this means that the list price would be used to calculate the benefit in kind, as the car doesn’t meet HMRC’s definition of a classic car above.

As most older cars don’t have an emissions figure, the list price is multiplied by an appropriate percentage based on the engine size. This is actually the case for all cars registered before 1 January 1998:

Therefore, a restored car from the 1960’s with an original list price of £700, a current market value of less than £15,000 and a 1,900cc engine would have a taxable benefit of just £217 per year. The company would receive corporation tax relief on the purchase of the car and for the costs of any repairs required.

By contrast a new petrol car with a list price of £13,000, with a relatively low COs Emissions figure (say 99g/km), would have a taxable benefit of £2,600 per year.

If you would like some advice regarding the taxable benefit of your company car, or if you are considering replacing any existing company cars, please do not hesitate to contact me.

Photo by Andreas Mortonus under licence with Creative Commons Licence