Providing company cars to employees can be a significant benefit, enhancing productivity, morale, and convenience. However, navigating the administrative and tax implications is essential to ensure compliance and maximise the benefits for both employers and employees. In this guide, we’ll explore the key steps to take when making company cars available to employees, with a focus on tax considerations and notifying HMRC.
1. Determine Tax Implications:
Before providing company cars to employees, it’s important to understand the tax implications for both the employer and the employee. Company cars are considered a taxable benefit, and employees may be liable to pay tax on the “benefit in kind” (BIK) value of the car. Employers are also subject to National Insurance contributions (NICs) on the value of the BIK.2. Calculate the Benefit in Kind (BIK) Value:
The BIK value is determined based on factors such as the list price of the car, its CO2 emissions, and fuel type. A reminder that electric cars also attract a BIK, but at a lower tax rate. HMRC provides detailed guidance and calculators to help employers and employees determine the BIK value accurately, but speak with someone from the IAS team to confirm these rates applicable to you, your staff and your business.3. Notify HMRC:
Employers must notify HMRC when providing company cars to employees (including directors). This notification should be done no later than 28 days after the end of each income tax quarter in which the car was made available for private use to employees and directors (i.e. 3 May, 2 August, 2 November, 2 February). HMRC provides an online form (P46 Car) for employers to report company car details. This notification to HMRC is applicable in the following scenarios:- Whenever an employee enjoys the benefit of a company car for the first time,
- has an additional car,
- ceases to have a company car (unless it is replaced with another one), or
- becomes a higher paid employee whilst enjoying the benefit of a company car.
4. Keep Detailed Records:
Maintain accurate records of all company car-related expenses, including lease agreements, insurance policies, maintenance costs, and fuel expenses. Detailed records are essential for tax compliance and auditing purposes.5. Communicate with Employees:
Ensure that employees are aware of their tax obligations and entitlements related to company cars. Provide clear information about how the BIK value is calculated, any deductions available, and how it will affect their take-home pay.💡GOOD TO KNOW💡: A noteworthy tip to remember is that employers aren’t obligated to fill out a form P46(Car) when replacing one car with another. The exemption stems from the belief that the tax implications of such a change typically don’t warrant the extra paperwork. Consequently, HMRC might only learn about the car change after the tax year ends, when employers submit a form P11D. This delay means HMRC could be unaware of the change for up to 16 months, potentially affecting your employee’s tax code and resulting in tax underpayments. To mitigate this, we suggest advising employees to contact HMRC to make them aware of the change when it happens to get their tax code changed sooner.
6. Reporting BIKs:
An employer is required to make an online return of all benefits and expenses to or for employees and directors in a particular tax year on a form P11D to HMRC, together with the employer’s declaration and statutory Class 1A return (P11D(b). Employees who left during the tax year are included. The returns are due by 6 July after the end of the tax year to which they relate. For example, for the tax year 2023/24, the deadline is 6 July 2024.
Conclusion
Providing company cars to employees can be a valuable perk, but it’s essential to understand the tax implications and comply with HMRC requirements.By following these steps and staying informed about tax regulations, employers can effectively manage company car schemes while providing employees with a valuable benefit.
