If employers provide company cars for their employees’ private use, they need to work out the taxable value so it can be reported to HMRC and the ‘Benefit In Kind’ can be paid. In recent years BIK’s have been off-putting unless the vehicles were commercial or full electric.
This taxable value is not as simple as just reporting the cost. It also depends on fuel type, level of C02 emissions and the amount of time the car is available throughout the tax year.
For example, your employer provides you with a Ford Focus costing £20,000. The cars ‘BIK rate’ (which can be found out on the HMRC website) is 27% and your income tax rate is 20%. Thus, your annual BIK tax is equal to £1,080.
However, have you ever considered using a ‘classic’ car such as a Fiat 500 from the sixties or a Ford Capri from the eighties as an alternative? Simply put, a classic car is one which has an age at the end of the tax year of 15 years or more. The real benefit is the tax efficiencies that these classic cars can provide.
The BIK is always assessed on original list price unless the car is both over 15 years old and has a market value of over £15,000. So, for example, say you are provided by your employer with a Fiat 500 from 1960, which cost as little as £400 back then. Since the market value of this car today is around £10,000, the BIK would be the list price of £400 multiplied by 15% (based on engine size) multiplied by your tax rate. This means that for a basic rate taxpayer, your BIK would only be £12.
Even if you are provided with a Ford Capri which has a market value of around £20,000 today, the tax liability is still pretty low. In this case, since the market value today is over £15,000, you would multiply the market value by 15% by your tax rate. For a basic rate taxpayer this leads to a BIK of only £600. We think some people would definitely prefer to stand out from the crowd in a Ford Capri over a Ford Focus!
Remember that classic cars also have lower or nil car tax and different insurance options and all you need to do is keep them in great condition to have lots of fun and turn a few heads!
Clearly this tax advice is general and If you would like some specific advice about benefit in kinds, no matter classic cars or not, get in touch by emailing firstname.lastname@example.org or 02895320155.