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How do I know if I got my company car tax right?

by , 11 July 2014
The experts behind the Practical Tax Loose Leaf Service recently received a question from Matthew who wants to know if he correctly understands how tax on a company car works.

This is something many employers struggle with. It can get complicated when you start working out an employee's fringe benefit tax.

Matthew specifically wants to know if he's understood these five points about company cars correctly. Read on to discover if you have...

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Five things about company cars you may also be struggling with

Here are the five things Matthew wanted conformation on:
1. The taxable percentage that your employee pays each month
Your employee pays fringe benefit tax of 3.5% of the car's value AND Vat of 0.3%. This is 0.3% of the cash value exceeding Vat.
2. Does this affect your employee's PAYE?
Your employee pays normal PAYE and you simply add the fringe benefit tax onto it.
3. If the company can claim the fringe benefit too?
Sadly you can't claim the cost fringe benefit as a deduction. What you can claim is the running costs of the car and its depreciation.
4. Who pays for the running cost?
If the car belongs to your company, all the running costs are your responsibility.
5. Does your employee need to keep a logbook?
Your employee must pay the tax on this company benefit with or without a logbook. He should keep one though because it can help him reduce his tax. If 80% of your employee's use of the car is for business, you could reduce his tax by up to 60%. Your employee needs a logbook to prove this.
There you have it, now you know the correct way to deal with the tax on your company car.

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