When a company car is made available to a director or employee there are further tax considerations which need to be considered, these often make the difference in deciding which route is most tax efficient. The provision of a company car and payment of fuel by the company are taxable benefits in kind in the hands of the recipient, i.e. the director or employee. The value of the benefit ranges based on the type of vehicle, the CO2 emissions figure and the list price.
This benefit in kind value would be deemed as employment income, and would be taxed at 20% or 40% depending on if the individual is a basic rate or higher rate tax payer. The company would also be required to pay Class 1A National Insurance contributions on the benefit value at a rate of 13.8%.
In practice for limited company directors this normally means that purchasing or leasing a car through the company may not be the most tax efficient option, once the additional taxes payable are considered against the tax savings, it would often cost more to purchase the car through the company then personally. This is especially the case for cars which have a higher CO2 emissions figures.