A client asked for my advice on whether to buy a car or a motorbike on the company. This is what I said. Dear Peter,
The taxable benefit for the employee with use of a company motorcycle is calculated as 20% of the purchase price (including VAT). This would continue as long as you had the motorcycle. Therefore an £8,000 company motorcycle would be generate a benefit of £1,600. Alongside the annual tax charge to you would be the annual Class 1A NIC charge to the company of 13.8% i.e. £276 for the lifetime of the benefit. The company would use the Annual Investment Allowance for the cost of the motorcycle and the costs would be deductible in the accounts.
If you owned the motorcycle privately you could claim 24p for every business mile ridden (normal commuting does not count). If you rode £5,000 business mile in year you could claim £1,200 from the company tax free and the company can claim a deduction for it.
By comparison the taxable benefit of a company car is based on a percentage of the list price. The percentage depends on the CO2 emissions of the car. For the 2015/16 tax year, if the emissions of a car are between 76 and 94g/km the percentage would be 13%. The lowest rate for CO2 of 50g/km and below is 5%. Broadly speaking the percentages are due to increase by 2% per annum for the next 4 years. Class 1A NIC would be payable on the benefit and the benefit does increase your income for child benefit purposes. Brand new cars with co2 of 95g/km or less qualify for 100% first year allowances and any running costs would be deductible in the accounts.
If you owned the car yourself you could claim 45 per mile for the first 10,000 miles 25p thereafter.
Below is a list of some tax efficient cars that might provide food for thought.
If you have any queries, please do not hesitate to contact me.