How to reduce Company Car Tax in UK?

Introduction:

Company car tax, also known as Benefit-in-Kind (BIK) tax, is a tax imposed on employees who receive company cars as a taxable benefit. In the UK, the tax is calculated based on the value of the car, its CO2 emissions, and the tax band it falls under. The tax can be a significant expense for employees, but there are ways to reduce it. In this guide we will learn about the how to reduce company car tax in uk.

Choose a car with low CO2 emissions:

One of the primary factors that determine the amount of BIK tax is the CO2 emissions of the car. Cars with low CO2 emissions attract lower tax rates, making them an attractive option for employees looking to reduce their BIK tax. Electric cars and hybrid vehicles are generally considered to be the most tax-efficient.

Understand the BIK Tax Calculation

The first step in reducing company car tax is to understand how it is calculated. BIK tax is calculated based on the value of the car, its CO2 emissions, and the individual's marginal tax rate. The value of the car is determined by its list price when new, and the CO2 emissions are based on the official CO2 emissions rating. The marginal tax rate is the rate of tax the individual pays on their taxable income.

The calculation of BIK tax is as follows:

BIK Tax = (List Price of Car x BIK Tax Rate) / 100

The BIK Tax Rate is determined by the CO2 emissions rating of the car and the individual's marginal tax rate. The BIK Tax Rate varies from year to year, and can be found on the HM Revenue & Customs (HMRC) website.

Choose a Car with Low CO2 Emissions

One of the best ways to reduce company car tax is to choose a car with low CO2 emissions. The lower the CO2 emissions of the car, the lower the BIK Tax Rate, and the lower the overall tax bill.

Cars with low CO2 emissions are typically more fuel-efficient, which can also result in lower fuel costs. In addition, cars with low CO2 emissions are often more environmentally friendly, which can be an important consideration for businesses looking to reduce their carbon footprint.

Consider Electric or Hybrid Cars

Electric and hybrid cars are becoming increasingly popular in the UK, and for good reason. These vehicles have low CO2 emissions, and as a result, attract lower BIK tax rates.

In addition to the tax savings, electric and hybrid cars also offer other benefits. They are often more fuel-efficient, which can result in lower fuel costs. They are also more environmentally friendly, which can be an important consideration for businesses looking to reduce their carbon footprint.

Choose a Car with Low List Price

The value of the car is one of the key factors in determining the BIK Tax liability. Choosing a car with a low list price will reduce the overall tax bill.

When choosing a car with a low list price, it is important to consider the total cost of ownership, including fuel costs, insurance, and maintenance. A car with a low list price may have higher running costs, which can offset any tax savings.

Consider Salary Sacrifice Schemes

Salary sacrifice schemes allow employees to exchange part of their salary for non-cash benefits, such as a company car. The advantage of salary sacrifice schemes is that they can result in lower BIK tax liabilities for employees.

In a salary sacrifice scheme, the employee gives up part of their salary in exchange for a company car. The value of the car is then calculated based on the reduced salary, which can result in a lower BIK Tax liability.

Salary sacrifice schemes can be a win-win for both employees and employers. Employees benefit from lower tax bills, and employers benefit from lower National Insurance Contributions (NICs) on the reduced salary.