Employer costs and benefits
Providing a company car to an employee or director for private use has financial implications for the employer as well as the vehicle recipient. Under the current tax system, the employer is liable to pay Class 1A NICs to reflect the Benefit-in-Kind (BIK) provided to the employee.
Company ownership of vehicles also impacts on how capital expenditures can be set against a company's profit. Whereas most cars use standard capital allowances, some Ultra Low Emission Vehicles are eligible for a 100% first-year write down as part of the Enhanced Capital Allowance scheme.
Employer Class 1A NICs – April 2018 to March 2019
To reflect the benefit-in-kind provided, Class 1A National Insurance Contributions (NICs) must be paid by the employer for each vehicle provided to an employee for personal use. As with company car tax, Class 1 NICs based on the vehicle's P11D value and relevant BIK rate which is determined by the official CO2 emissions and fuel type.
The level of NI contributions is also determined by an annual percentage rate which is announced in the Budget – and which is currently 13.8% in financial year 2018/19. The basic calculation to determine the amount of Class 1A NICs payable is as follows:
NIC = P11D value x BIK rate based on CO2 x 13.8%
Enhanced Capital Allowances to March 2021
In addition to standard capital allowances available for company vehicle ownership, businesses are able to claim an Enhanced Capital Allowance (ECA) for low emission vehicles if used for business related activities.
Until end March 2021, battery electric vehicles and the greenest ultra-low emission vehicles are eligible for a 100% 'write-down' in the first-year of purchase. To qualify, the vehicle must be brand new. Refuelling equipment for natural gas, biogas or hydrogen vehicles are also eligible under the ECA scheme. Note, however, that this benefit no longer applies to rental and hire companies (including car clubs) which makes vehicles available for short-term hire.
Businesses of all sizes can claim the 100% allowance on a car provided that:
* the car is 'unused and not second hand';
* it is electric or has CO2 emissions of not more than 75 g/km (to March 2018);
* it is electric or has CO2 emissions of not more than 50 g/km (April 2018 to March 2021);
* the expenditure is incurred before 31 March 2021.
While the ECA scheme will continue until 31 March 2021, from April 2018, the qualifying ECA threshold for low carbon vehicles will reduce from 75 g/km to 50 g/km to match the latest EU CO2 emission targets. April 2018 also sees the lowering of the threshold for main rate cars.
|Annual write-down rates for cars registered between April 2015 and March 2021|
|Capital Allowance Rates||Allocation||CO2 (g/km)
April 2015 - Mar 2018
April 2018 - Mar 2021
|100% FYA (first year)||Enhanced||Up to 75 g/km||Up to 50 g/km|
|18% WDA (annual)||Main rate||76-130 g/km||51-110 g/km|
|8% WDA annual||Special rate||Over 130 g/km||Over 110 g/km|
Source: HMRC 2017.
Advisory Fuel Rates from September 2018
Advisory Fuel Rates (AFRs) are HM Revenue and Customs' recommended reimbursement amounts for drivers reclaiming business mileage - often in company vehicles. These rates apply either to reimburse employees for business travel in their company cars, or when required to repay employees the cost of fuel used for private travel.
These figures are updated every quarter, with rates covering the use of petrol, diesel, LPG, and electric powered vehicles. For the purpose of these rates, hybrid models - both conventional and plug-in - are considered as petrol or diesel vehicles.
Those businesses that pay a rate for business travel no higher than the AFRs, HMRC will accept there is no taxable profit and no Class 1A National Insurance to pay. Businesses can use their own rates if circumstances reflect that these would be more accurate, though they must demonstrate that the actual fuel cost per mile is higher, otherwise any excess will be taxed.
|Advisory Fuel Rates - Petrol & LPG - from 01 September 2018|
|Engine size||Petrol amount per mile||LPG amount per mile|
|1400cc or less||12 pence||7 pence|
|1401cc to 2000cc||15 pence||9 pence|
|Over 2000cc||22 pence||13 pence|
|Advisory Fuel Rates - Diesel - from 01 September 2018|
|Engine size||Petrol amount per mile|
|1600cc or less||10 pence|
|1601cc to 2000cc||12 pence|
|Over 2000cc||13 pence|
|Advisory Electricity Rates - Electric Vehicles- from 01 September 2018|
|Motor power||Electricity amount per mile|
Source: HMRC 2018.