How Do Company Cars Work? A Guide for Employers
Company cars are leased by an employer for an employee’s business and personal use. The employer usually pays for maintenance, insurance, and servicing. However, the employee must pay the Benefit-in-Kind (BIK) tax.
Many companies offer company cars to employees or directors as a perk or for those who drive a lot as part of their job. As an employer, you may have considered whether company cars are worth investing in. Company car schemes can help ensure employees are happy. They offer rewards without raising your wage and pension costs.
Employees often prefer company cars because they reduce the amount of income tax they must pay. It also allows them to get a new model of car with part of the costs covered by the company.
How to set up a company car scheme
First, research the expected costs of providing company cars. Consider how many cars you want and the estimated mileage. Then, collate a list of cars your employees can choose from that are within your budget.
Offering hybrid and electric vehicles will lower your company’s carbon footprint. These vehicles are also popular with employees because they reduce the BIK tax they pay.
You can only give company vehicles to permanent employees. The salary deduction for a company car cannot lower the employee’s pay below the minimum wage.
Then you can go to a vehicle procurement specialist and get a quote for the requested vehicles. You may need to undergo credit checks and complete a financial application to lease the vehicle.
At Apertus Group, we can supply a range of vehicles for a probationary period, including electric vehicles. This means you can get a long-term rental and reap the benefits of a company car scheme without committing to purchasing and owning them yourself.
Once the company delivers the car, the employee typically leases it for 2-4 years and takes on responsibility for it. It is a good idea to write a contract for your employee to sign so they understand the required BIK tax payments and any restrictions you have for the vehicle. The company calculates Benefit-in-Kind tax using a P11D form and deducts it from the employee’s monthly salary.
Are company cars tax-deductible?
If you lease a car, you can deduct the rental payments as business expenses. However, you may pay more for cars that produce high CO2 emissions.
Do company cars include insurance?
Yes, the employer is expected to pay for insuring the car. They also typically cover the cost of car registration, VED, and maintenance.
Apertus Group specialises in high-end elite vehicle procurement. To learn more, email info@apertusgroup.co.uk or call us on 01604 212 828.
