How to keep your company car tax bill low
From choosing a greener car to knowing which options to avoid, follow our top tips to pay less in company car tax every month – and all completely legally...
Having a company car is great, but paying the tax for it each month – not so much. However, there are ways to take the sting out of your monthly Benefit-in-Kind (BiK) bill, and these smart choices are completely within the rules.
Here, we'll look at what you can do to lower your monthly company car tax bill.
Choose an electric car
The easiest way to cut your company car tax bill is to choose an electric car.
Electric cars – including electric SUVs – attract a BiK rate of just 2%, and that rate will remain static until April 2025, so an electric company car is hugely cheap in tax. After that point, electric cars will still be cheaper to run than combustion-engined equivalents, with the BiK rate for electric cars increasing to 3% from April 2025, and then rising 1% every year thereafter, up to a maximum of 5% in 2027-28.
Avoid choosing expensive options
Company car drivers pay tax the P11D value of their car, which is the on-the-road price, minus the cost of registration and the first year's VED (road tax). This price includes the cost of options, so if you get a bit tick-happy with the options list, the price of the car will go up, and so will the amount you’ll have to pay in company car tax.
The wise choice is a car that’s well equipped as standard, so there’s no need to add options. Some brands offer versions of popular models specifically geared towards business drivers, which have some of their most popular options included in the price.
Avoid big alloy wheels
The official WLTP emissions tests dictate that manufacturers must quote CO2 figures for cars that are standard and those that have options fitted, such as large alloys. These can add weight and rolling resistance, thereby increasing emissions.
So while they might look good, you’ll pay through the nose for them every single month. For example, the Audi Q3 35 TDI S tronic Technik SUV rides on 17-inch alloys, and emits 133g/km of CO2. The Q3 35 TDI S tronic Black Edition has the same engine and gearbox, but runs on cool-looking 19-inch alloy wheels. It emits 140g/km, which is enough to push the car up by two tax bands.
Use a pool car
When is a company car not a company car? When it's a pool car.
That’s because a pool car is one that the company provides for you to do your business miles in, but not commuting or private mileage. Therefore it isn’t considered a benefit, which means you pay precisely zero Benefit-in-Kind tax on it.
The downside is that you’ll need to use your own car (and fuel) to get to and from work, or get the bus. But if you don’t live too far from the office and the area in which you live is well served by shops and leisure facilities, then a company car could be an expense that you actually don’t need.
Clearly, this won’t suit everyone, but if you fall into this bracket you could save a lot of money by skipping the company car and just hiring a car when you need one. Car clubs also provide cost-effective and convenient short-term car usage.
Drive a pick-up truck
Pick-up trucks are truly versatile vehicles these days, especially if you choose a double-cab model, because they can be working transport during the week, and family cars at the weekend. Why are we mentioning them here, though? Well, because they’re categorised as light commercial vehicles, they are taxed differently from ordinary cars.
How differently? Well, the pick-up must have a payload of at least a tonne and be available for private miles as well as business use. If it is, the driver pays tax on £3600 (during the 2022/23 tax year). So for a 40% taxpayer, a pick-up will set them back £120 per month.
And if that same taxpayer chooses a conventional estate car such as an Audi A4 Avant 40 TDI quattro Sport, which has a P11D of £42,550, they’ll be paying £468.08 per month. Choosing the pick-up would save them £348.08 each and every month.
Be wary, though, because if the pick-up truck you're looking at cannot carry a tonne, then it is categorised under conventional CO2-based BiK rules. For example, a new Ford Ranger Raptor looks super-tough and cool, but has a payload of much less than 1000kg. And it has a twin-turbo 3.0-litre V6 petrol engine, so emissions are somewhat high. It has a P11d value of £56.971, which equates to a monthly bill for a 40% taxpayer of £702.67. Ouch.
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