Quarterly News

Is a second company car tax efficient?

Company cars are thought of as being a highly taxed perk and this is true if you drive an expensive car that has high CO2 emissions. So if you take on a second company car for a member of your family to drive, surely the tax cost would be horrendous? Well, not necessarily.

There is actually no penalty for having a second, third or even fourth company car for an employee or director. The taxable benefit of each car is calculated as a percentage of its cost when new, based on its official CO2 emissions. If you persuade the company to lease a small car for your partner, the extra cost to you could be a lot less than you would have to find out of your own pocket to run the same vehicle.

Assume the showroom price of the second car, before any discounts, is £10,000 and it has CO2 emissions of 160g/ km. This means 19% of its price (19% x £10,000 =£1,900) would be added to your salary as a taxable benefit. As a higher rate taxpayer you would pay an additional £760 per year in tax for this second car. If your top rate of tax is 22%, the additional tax would only be £418. For this relatively small cost to you the company would pay for the lease, all the servicing, repairs, insurance and the road tax. All that would surely add up to more than £760, even for a small car. If the company provides free fuel for the second car that would generate an extra tax charge and it is not normally tax efficient to take free fuel for private use.

The lower the CO2 emissions rating of the car the lower the tax charge but you should be aware that the tax charged on company cars has periodically increased from 2002 when the system was introduced. For example the taxable benefit for a car with CO2 emissions of 160g/km was 15% of its price for 2002/03 but from 6 April 2008 the same emissions will generate a taxable benefit of 20% of its price.

The final but nevertheless significant factor when considering a second car is whether the employer will fund the purchase without any commensurate change in salary!

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