Company Car Tax Savings: How to Reduce Costs

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.

Table of Contents

• Are Company Cars Tax-Efficient for Spouses and How to Maximise Company Car Tax Savings?

• Tax Relief & VAT Benefits

• Buying vs. Leasing a Company Car: Which is Better

• Maximising Tax Savings with Electric Vehicles

• Need Tailored Company Car Tax Advice?

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:

• Up to 100% First Year Allowance (FYA) on the purchase of the vehicle.

• Company car tax savings on all running costs.

• Full VAT reclaim on the company car’s running costs.

Overall, this is often more cost-effective than providing a car for a spouse out of taxed income.

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 full rental cost, including the 50% of VAT that is irrecoverable.

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 ASAWTAX, we help our clients structure their company car policies for maximum company car tax savings.

Contact ASAWTAX today for expert company car tax planning advice!

Meet Omar Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn. Book a call today to learn more about what Omar and ASWATAX can do for you.

*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.