Confused with what is the best company car for tax to save money?
I got you covered.
Company cars are still a popular perk of the job in the UK, but over the last few years, the whole industry has had a real shakeup. This could potentially result in you bleeding money on company car tax. Which could be leaving you asking what is the best company car for tax?
Over the past 10 years, my husband and I had to make this decision multiple times. Each time we ended up with a different type of car to save money because of the changing criteria.
In this post, I will share with you, in simple terms, how choosing the right company car could save you several thousand pounds in tax. Plus, additional tips on how you can save even more!
Disclaimer, I’m not affiliate with any of the products mentioned below.
Company Car for Tax Made Easy
In previous years, diesel was always the answer, when it came to figuring out what would power your new company car. Paving the way for BMW, Mercedes and Audi to flood the company car market with their executive cars.
Since 2013 company car tax has been increasing year on year, which means more money out of your own pocket.
The tax charge is calculated by applying a percentage figure (know as BIK rate – Benefit In Kind rate) to the price of the car (P11D).
The P11D is the list price plus any options you add and the delivery of the car, excluding registration and road tax fees.
I often find this P11D price to be higher than any personal deal you could get. However, it’s what is used for the calculations, and what the lease companies will be charging your employer.
Then the fuel type (diesel, petrol, hybrid, electric) of the car and its CO2 emissions determine the appropriate percentage (BIK rate). This is defined by HMRC.
All meaning those pretty nice BMW, Mercedes and Audi’s are now more than double the tax they used to be, coming in around the 34% mark.
So if you are taxed 40% based on your earnings, you would be paying around £6,000 per year in company car tax alone. £18,000 over a typical 3-year lease. (Based on a BMW 320d M-sport)
Imagine what you could do with an extra £18,000?
Take a popular company car BMW 320d M Sport, as an example.
- The cost of P11D is £43,280
- BIK rate (based on CO2 139 g/km) is 34%
- BIK for the car is £14,715
The amount you pay in tax each year is then your PAYE tax rate multiplied by the BIK :
- 20% tax rate (You earn £12,501-£50,000) then you pay £2,943 for the 2020/21 tax year
- 40% tax rate (You earn £50,000-£150,000) then you pay £5,886 for the 2020/21 tax year
- 45% tax rate (You earn over £150,000) then you pay £6,622 for the 2020/21 tax year
And by the way, the BIK rate increases to 35% for 2021/22 and 36% for 2022/23. So the amount coming out of your pocket will keep getting larger.
The conclusion – diesel is not the best company car for tax.
You can use this Company Car Tax Calculator for any car you are interested in.
Is Petrol the Best Company Car for Tax?
So what about petrol? We have seen the demonising of diesel in the press, so petrol must be a better option, right?
Because the tax is based on CO2 emissions, you still get hit if you choose petrol. The tax will be lower, but we are still talking £16,500 over 3 years. Based on BMW 320i M-sport.
Are Hybrid Cars Good for Company Car Tax?
The answer for hybrids depends on the miles you do and the electric range they provide.
Hybrids can reduce your tax bill significantly, by around 1/3. It allows many commutes or short journeys on full electric power, just needing topping up at a home or office charge point.
This can significantly reduce your fuel costs as well as tax. (They also offer great performance, when using both the electric motor and internal combustion engine).
But this still leaves you with a tax bill of around £6000 over the 3 years (Based on a BMW 330e M-sport)
That’s still a very nice family holiday.
I don’t know about you, but I can’t afford to give money away like that.
So, What is the Best Company Car for Tax?
Before I get in to the best option, I want to share this data with you…
Based on UK National Survey, for passenger cars, 98% of UK car journeys are less than 50 miles. The next 1% are between 50-100 miles. And the final 1% is greater than 100 miles.
Just start to think about how many miles you do per day…unless you are driving over 250 miles per day, then…
The answer is electric!
The government is incentivising everyone to move towards electric company cars, they are doing this with the lowest BIK rates ever.
After April 6th, 2020 through to April 5th 2021 the BIK for electric cars is a staggering 0%.
Yes you read that right.
That means you pay 0% tax or put another way, you get your company car for FREE.
It will increase to 1% for 2021-2022, and then again to 2% in 2022-2023. However, that still only means to pay a whopping £598 over 3 years, compared to the £6000 for your hybrid, or the £16,500-£18,000 for your petrol/diesel.
Which Electric Car is Right for Me (and My Family)?
So what’s the catch?
Are you picturing a quirky looking, low powered, 2 seat city car, where you would struggle to put two bags of shopping and definitely no kids.
That also gets you an executive car.
But BMW, Mercedes and Audi haven’t quite got the cars on their forecourts yet.
For this, you need to go to Tesla.
For a similar budget (P11D) you can have a Tesla Model 3, with a range of 348 miles (way more than you need for most trips).
This car got 5 out 5 stars in the trusted Autoexpress review.
This car will also, outperform any of the big 3 I have mentioned, allow you to watch Netflix, YouTube and play video games (all while parked I am afraid) and fart on demand!
There are other options for EV’s but the Tesla is a game-changer.
It is disrupting the car industry. From my point of view, has yet to be matched by any other car manufacturer.
So there you have it, how to save between £6,000-£18,000 simply by going electric.
Wait, but I promised you even more…
So if this saving isn’t enough, here are a couple of top tips for when you get your electric car.
Tip #1: Change your electricity tariff to an electric vehicle tariff.
With the increase in popularity of EV’s the utility suppliers are offering all sorts of new deals for consumers, including cheap, sustainable, non-fossil fuel derived (green) energy – win, win, win.
The tariff we are currently on comes from British Gas, and provides low cost energy between the hours of midnight and 5.00am.
Now you won’t be able to fully charge a Tesla using a 7KW charger during this time, but its enough to give you a 30% charge, or 104 miles – enough for your commute? And don’t worry you don’t have to get out of bed to plug the car in at mid-night, you can set the car to charge at certain times, and limit it to only add 30%
This means you only charge using the cheapest rates.
Our day rate is 20.001p per kWh, but our rate in the evening is 4.7p per kWh.
So a full charge at the day rate for the Tesla would cost you around £15 (75 kWh x £0.2), but charging at night would be around £3.50 (75 kWh x £0.047). Giving 348 miles for £3.50.
348 miles in the BMW 320d M-Sport would cost £29-36 (depending on if you use the BMW mpg or tested real world mpg)
So by choosing the right tariff can save you £25.50-32.50 for every 348 miles.
If you do 12,000 miles a year, that’s £880-1,120 per year.
Tip #2. Charging your EV
Right now there are many ways to charge your new EV, but understanding the options and costs can save you money.
- At home through a standard 3 pin plug (this will take a long time so not recommended)
- At home using a wall box, either 3KW, 7KW or 15KW. Higher the KW, faster the charge but higher the installation price. Also some cars are limited to charge rates at home. i.e. Tesla Model 3 is a maximum of 11KW, so not sure it’s worth spending the extra for the 15KW unless you need it.
- At work, if your employer provides this.
- Public chargers, typically 3 or 7KW, and sometimes free, check out Pod Point.
- Public fast chargers, 50-150KW, these are the one that provides 60% charge in 20 mins, but you generally have to pay or pay to have access to fast-charging stations included when you purchase the car. Fast charger prices vary, but Tesla claims the average price is £0.24 per kWh so not much more than my home electric tariff. In reality, expect £0.30-0.35.
- Superfast chargers, in Europe 320KW chargers, are being installed, but again many cars are limited, i.e. Tesla can’t take this charge rate, so not much use yet, but this opens the door for 5-minute charging. No pricing available yet.
For today I want to focus on number 2, charging at home using a wall box, apart from free charge points this is the cheapest and certainly the most convenient.
I would go for the 7KW, as this reduces the charging time by almost half compared to 3KW.
Government grants are still available, which is a £350 discount, which means the cost to get a 7kW charger installed ranges from around £400-700.
The chargers are also getting smarter, to help reduce your charging costs, check out the Ohm, which you can set to only charge when your electricity is cheapest, or greenest!
Source : https://www.ohme-ev.com/ (I’m not an affiliate)
Hopefully, your company pay for a home charger with the car, but if not, think of the thousands of pounds you saved by going electric, take a look at your larger paycheck due to less tax, and the purchase is still worthwhile.
Final Thoughts on Best Company Car for Tax to Save Money
So now you really have it, the best company car for tax is always hands down electric, then if you get smart about charging and your electricity supplier tariffs, the savings just keep coming.
We have only had our Tesla for 3 months, but absolutely love it, and so do my family. It’s the car of choice for the school run, which says a lot!
P.S You are also helping clean up your own environment, improving air quality, saving the planet while riding around in a pretty cool car!