Shropshire firms urged to shift gears to get tax efficient company cars

Fiona Green, Taxation Director at Shrewsbury-based DJH Accountants, is urging firms, especially those with staff that undertake significant business mileage, to consider the tax advantages offered by enabling employees to acquire vehicles via a loan from the company, rather than more traditional alternatives such as leasing or hire-purchase.

“Usually, with hire-purchase or leasing, the employee pays tax based on the cash equivalent, while the business can claim tax relief for either the leasing costs, or through capital allowances if the car is bought outright,” Fiona explained.

“But by loaning staff the cash to buy a company car, firms can make a number of significant tax savings. Whilst the employee has the loan it is interest-free, so is a benefit in kind item, but the cash equivalent is only 4% of the total loan amount.”

Fiona revealed that when the loan is eventually written off, it is subject to standard tax and National Insurance levies, but the business can vote through a bonus to repay the loan, so the employee is not left out of pocket.

“From the company’s perspective, they also get tax relief on employee business mileage claims at the standard HMRC rate – 45p per mile for the first 10,000 miles and 25p per mile thereafter. By using this little-known route to funding company cars, we have been able to drive forward significant tax efficiencies for a number of our clients, often totalling thousands of pounds per car. Compared to other forms of business vehicle finance, such as leasing or hire-purchase, going down the loan route isn’t particularly complicated, and can also offer huge tax savings too, putting both business owners and employees in the driving seat,” Fiona concluded.