Business owners
Company Car Tax Savings: How to Reduce Costs
On this page5 sections
Key takeaways
- 1The owner or director of a business will pay tax on company cars as they are considered part of their remuneration package.
- 2If the vehicles used have very low CO2 emissions, the tax advantages can be substantial.
- 3If the company chooses to lease rather than purchase the vehicle, it can recover 50% of the VAT on the lease.
Company car tax savings can play a crucial role in financial planning. Cars and other benefits may form part of a spouse or civil partner’s overall remuneration package. Even if the spouse does not work in the business, providing a company car can be a tax-efficient option and lead to significant tax savings.
Are Company Cars Tax-Efficient for Spouses and How to Maximise Company Car Tax Savings?
The owner or director of a business will pay tax on company cars as they are considered part of their remuneration package. Consequently, they will appear on the owner or director’s P11D rather than their spouse’s.
Tax Relief & VAT Benefits
If the vehicles used have very low CO2 emissions, the tax advantages can be substantial. Depending on the car’s CO2 emissions, the company may benefit from:
- 100% First Year Allowance (FYA) on the purchase of a new zero-emission (0g/km) car, available until 31 March 2027 for companies (5 April 2027 for the self-employed); other cars qualify for writing down allowances instead.
- Company car tax savings on all running costs.
- VAT on repairs and maintenance is usually recoverable, but fuel needs care.
Overall, this is often more cost-effective than providing a car for a spouse out of taxed income.
If the vehicles used have very low CO2 emissions, the tax advantages can be substantial.
Buying vs. Leasing a Company Car: Which is Better
If the company chooses to lease rather than purchase the vehicle, it can recover 50% of the VAT on the lease. Additionally, the business can claim a corporation tax deduction for the rental cost, including the 50% of VAT that is irrecoverable, reduced by 15% if the car emits more than 50g/km of CO2.
Maximising Tax Savings with Electric Vehicles
Electric company cars offer even greater tax savings, including:
- Lower Benefit-in-Kind (BiK) tax rates, meaning reduced tax liability for the employee.
- 100% First Year Allowance (FYA), enabling companies to claim full tax relief on eligible electric vehicles.
- Lower running costs and reduced National Insurance Contributions (NICs), contributing to further tax savings.
Need Tailored Company Car Tax Advice?
Every business is different, and comparative calculations should be reviewed to determine the most company car tax-efficient approach. At ASWATAX, we help our clients structure their company car policies for maximum company car tax savings.
Contact ASWATAX today for expert company car tax planning advice!
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