Have you been offered the choice of a company car or cash alternative?
Read our article before you make the decision so you understand how the two options are taxed.
Company cars have been very popular with employees, but the benefit in kind is increasing and now employers are looking at alternative packages to offer employees. You can see a full article on employment benefits on our website here.
One of these is an option between a company car and a cash alternative. There are several things to consider before making this decision and the answer can change depending on your personal preference and circumstances.
The cash alternative is treated as additional salary and would be subject to Tax and National Insurance through the normal PAYE process. With a company car the employee is subject to income tax on the taxable benefit. The taxable benefit is worked out by applying a percentage based on the CO2 emissions to the list price of the car. A more detailed breakdown of cars for employees is available here.
If you have an existing company car, salary sacrifice car or have previously chosen a car rather than cash, nothing changes until 5 April 2021 unless you change the car before this date.
On 6 April 2017, the rules changed for employees who decide to take the company car option when given the choice of a company car or a cash alternative. They will now be taxed either on the benefit in kind value or the cash alternative – whichever is highest.
Therefore, those who choose a car with a low benefit in kind value may no longer benefit from a reduced tax bill and pay tax on the full amount of the cash equivalent.
If you have an ultra-low emission vehicle which is under 75g then you are exempt.
If you would like any further information, please contact Kelly Cummings at our Ledbury office on 01531 631500, or e-mail email@example.com.