Driving down the cost of the company car

The company car remains an important part of the remuneration package for many employees ? and an essential business tool for many employers.

But is a company car the best way to go?

However, tax and national insurance costs could mean that your company car may not be the most tax-efficient option for either employer
or employee. The car benefit and car fuel benefit (where fuel for private use is provided with the car), on which you pay income tax at up to 45% (or even 60%) and your employer pays 13.8% Class 1A national insurance contributions (NICs), are calculated at up to 35% of the car’s list price, and the same percentage on a notional ?21,100 (fuel).

The maximum taxable percentage is set to rise to 37% in April 2015.

For some, an employer provided ?van? may be a viable alternative to a company car: the tax charge is ?1,200 plus up to ?226 for fuel for those paying tax at 40% (earning approximately ?41,450 to ?150,000 in 2013/14). The company car or van benefit is currently subject to a Class 1A NIC charge of 13.8%, payable by the employer.

Should you review your company car policy?

It may be worth reviewing the company car policy completely, as it could prove more beneficial to pay employees for business mileage in their own vehicles, at the statutory mileage rates. This option is usually more likely to pay off when business mileage is high.