Company Car Income Tax: A Guide for Business Owners

As a business owner, you're likely no stranger to the complexities of company car income tax. In the UK, for example, the benefit-in-kind (BIK) tax is a major consideration for company car owners. The BIK tax rate for a company car is determined by the car's CO2 emissions, with higher emissions resulting in a higher tax rate.

The BIK tax rates for company cars in the UK are as follows: 0-50g/km, 0% tax; 51-75g/km, 2% tax; 76-90g/km, 9% tax; 91-100g/km, 15% tax; 101-110g/km, 22% tax; 111-130g/km, 27% tax; 131-150g/km, 32% tax; 151 and above, 37% tax. These rates apply to cars registered on or after April 6, 2017.

The BIK tax is typically calculated as a percentage of the car's list price, and is paid by the employee. The employer may also need to report the BIK tax on the employee's P11D form, which is used to calculate the employee's income tax and national insurance contributions.

If your business owns the company car and you use it, the dollar value of your business driving is a tax-free working condition fringe benefit provided to you by your business. You can't normally deduct car expenses personally, but if your business is a pass-through entity, those deductions can reduce the amount of taxable profit passed through to your personal tax return.

The IRS provides details on how to value fringe benefits, making it easier to place a dollar value on your personal use of the company car. This is especially important if you use the company vehicle for business and personal driving.

Tracking your business and personal miles is crucial, as it will help you determine the taxable fringe benefit. You can deduct 54 cents for every business mile you drive, but be sure to keep accurate records in case the IRS comes calling with an audit.

Using a company car for business purposes only, such as during work hours, may not be considered a fringe benefit. However, if your employer provides you unrestricted use of the company car, including personal and commuting access, that can be considered a fringe benefit with tax implications.

Here are some key tax implications to keep in mind:

Deducting expenses can be a complex process, but there are some key facts to keep in mind. If you drive a company car, the value of personal miles driven will be a fringe benefit wage, included with your other W-2 wages.

The company can treat the car as a business asset and depreciate it if it was purchased outright. Maintenance, gas, and insurance expenses for the vehicle are deductible, including the portion related to personal use. This can be a significant advantage over owning a car personally.

If you were to purchase a new car personally, you wouldn't be able to deduct any expenses, including interest on a loan. Financing a new vehicle can also impact your credit score.

Here are some key deductions related to company cars:

If your business owns the car and you use it, the dollar value of your business driving is a tax-free working condition fringe benefit provided to you by your business. This applies if the business holds the title of the car, not you personally.

The business can then deduct all of the actual car expenses, including depreciation, interest on the car loan, insurance costs, and more.

You personally can't normally deduct these expenses, but if your business is a pass-through entity, those deductions can reduce the amount of taxable profit passed through to your personal tax return.

To place a dollar value on your personal use of the company car, you can track your business and personal miles, multiply the annual lease payments by the percentage of personal use, and deduct 54 cents for every business mile you drive.

If you're a sole proprietor who uses your personal vehicle for business purposes, you can save on your taxes by tracking your miles and using the IRS guidelines to value your fringe benefits.

If you don't keep track of your business versus personal mileage, your entire use of the vehicle could be considered a fringe benefit for tax purposes.

A small amount of personal use on a car isn't considered a fringe benefit by the IRS, such as using a company car to pick up lunch between meetings.

Here are some key points to keep in mind when it comes to company car taxation:

If you're considering offering electric vehicles as company cars, there are some notable advantages for employers, including a 100% first year capital allowance for new and unused fully electric vehicles purchased outright before 31 March 2025.

Providing a company car to employees or owners requires proper documentation to track personal and business use of the vehicle. This documentation is crucial for tracking business miles.

There are several good mileage tracker apps available, such as Stride, MileIQ, and Hurdlr, which offer free and subscription versions to simplify logging business miles. These apps can help streamline the process.

Personal use of the vehicle must be treated as a fringe benefit and included in the employee's income. This can be complex and requires proper valuation and documentation.

Company-provided cars can be a valuable fringe benefit for business owners and key employees, providing them with a vehicle at a low tax cost while generating tax deductions for their businesses.

A company car can save employees expenses while allowing the company additional deductions. This is because the employee can use the car for both business and personal use, and the company can deduct the value of the personal miles driven as a fringe benefit wage.

The employee's true cost is the income tax resulting from including the value of the personal use mileage, whereas if they had purchased the car themselves, they'd be out-of-pocket for the entire purchase price. Maintenance, gas, and insurance expenses for the vehicle are also deductible, including the portion related to personal use.

If an individual were to purchase a new car personally, they would not be able to deduct any expenses or the interest expense if the car was financed. This is because unreimbursed employee business expenses are no longer deductible due to the Tax Cuts and Jobs Act.

Here's a breakdown of the savings:

In a salary sacrifice scheme, the employer acquires an electric car under a lease arrangement and supplies it to the employee, who agrees to a reduction in their gross salary equivalent to the lease cost. This can result in significant savings for both the employee and the employer.

Using a company car can save employees expenses, but it also means they'll have to pay income tax on the value of personal miles driven.

The company can deduct expenses like maintenance, gas, and insurance, including the portion related to personal use.

If the company purchased the car outright, it can depreciate the vehicle as a business asset.

The interest expense on a company car loan is also deductible as a business expense.

Individuals who purchase a car personally can't deduct expenses, only unreimbursed employee business expenses, which aren't currently deductible due to the Tax Cuts and Jobs Act.

To accurately track and deduct expenses, consider downloading MileIQ to track your drives, including business use and personal miles.

With MileIQ, you can easily categorize and separate business and personal drives, making it simpler to calculate your deductions.

A company car can be a big expense-saver for employees. It allows them to use the car for both business and personal use, and the value of the personal miles driven is considered a fringe benefit wage, which is included with their other W-2 wages.

This means the employee's true cost is the income tax resulting from including the value of the personal use mileage. They wouldn't have to pay for the entire purchase price of the car, operating, and maintenance costs if they had bought it themselves.

The company treats the car as a business asset and depreciates it if it was purchased, not leased. They can also deduct maintenance, gas, and insurance expenses for the vehicle, including the portion related to personal use.

If an employee were to purchase a new car personally, they wouldn't be able to deduct any expenses or interest, even if they financed it.