If you trade through a limited company, the rules regarding company cars are not very friendly.
From the employee’s perspective, they give rise to a benefit in kind, or ‘perk’, which is a multiple of the list price and a percentage based on the emissions. Say a car’s list price was £20,000 and the emissions gave a % of 20%, the BIK would be £4,000 (essentially, additional salary).
From the company’s perspective, the purchased car is capitalised and tax relief, through capital allowances, is based on the emissions:
- Cars with emissions up to 110 g/km get 100% tax relief,
- Cars with emissions between 110 g/km and 160 g/km get 18% tax relief, on a writing down basis,
- Cars with emissions above 160 g/km get 8% tax relief , again on a writing down basis.
As you can see, a company will not get much relief for cars with emissions in excess of 110 g/km. However, there is still an opportunity to save money with cars with emissions to up 110 g/km – these are QUALECS (Qualifying Low Emission Cars).
In addition to the advantage to the company, the BIK % is also lower. For the current tax year, the BIK for cars with emissions up to 110 k/gm is 13% of list price for petrol cars and 16% of list price for diesel cars.
The list of cars which are classified as Qualecs isn’t just small cars, the following cars are all included:
- Audi A3
- BMW 3 series
- Ford Focus
- Lexus CT200
- Renault Megane
- Volvo V40
- VW Golf
The full list is available here.
Therefore, if you are considering buying a car for your company, either for employees or for yourself, it may be worth thinking whether a Qualec would be a good investment.
Note, the rates quoted above are correct as at November 2012. The legislation regarding changes to both capital allowances and BIK rates will change in the future, so it may be worth checking first what the implications may be.