This article will explore the options available for company cars, following on from the feature Company cars -payroll issues explained
The trend to make more additional features available has added a further challenge to the driver or employer seeking to make a good choice of car.
Some car manufacturers offer a wide choice of options, whereas others prefer to only supply standard highly specified vehicles. Within the same manufacturer, the individual may need to compare the cost of adding options as against selecting a higher grade which includes those features as standard. At least this decision process is not further confused by tax considerations since the price of accessories is generally treated in the same way as the price of the car when calculating company car tax.
The employer may wish to impose guidelines which restrict the choice of additions to the more conservative options for the purpose of safeguarding residual values. However it is unlikely that tax reasons can be used to reinforce car policy in this area.
Car brochures may list “options”, “optional equipment” and “accessories”, but these are all “accessories” as far as Her Majesty’s Revenue and Customs (HMRC) is concerned. Accessories which are never fixed to the car are not treated as part of the car benefit, and these might be described as accessories by the manufacturer. However, this is not a general rule since a few manufacturers put some items requiring hefty installation under the heading of accessory.
Accessories which do not need to be included and therefore escape company car tax:
- Mobile telephones. This is in line with other benefit rules which exclude mobiles. If additional telephone preparation packages are separately identifiable and necessary for the use of the telephone, it can be argued that they also form part of the telephone cost.
- Items designed solely for use by a disabled person.
- Any equipment enabling a disabled person to drive, provided it relates to the disability for which a blue badge is held. So complaints of a bad back are sadly not enough to qualify for tax-free upgrades to automatic transmission and super lumbar support massage seats.
- Any accessory which was necessarily provided for the driver’s work. Note that this use need not be exclusive. Examples might be roof bars, tow bars, security or storage equipment.
- Accessories never fixed to the car such as maps and rugs. This means that a temporary or suction-cupped satnav device would be exempt, whereas the fitted equivalent would be taxed.
- The cost of converting the car to run on LP gas or CN gas after it was first registered.
- Items added after acquisition costing less than £100.
- Accessories which take the total list price of the car over the maximum subject to tax which is £80,000.
- Extended servicing packages or any separately identifiable costs that are concerned with the maintenance, warranty, insurance or financing of the vehicle.
- Fuel costs, since these are taxed separately.
All other accessories must be added up and shown on the P11D and P46(car) so that they form part of the assessment for company car tax. The calculation should include:
- The full list price of the accessory supplied, even if obtained as a free promotion, or under any type of discount
- Any associated delivery and installation costs
- Any of the exceptions listed above which cannot be clearly identified. For instance if the manufacturer chooses to include three years “free” servicing in the official list price of the car, the driver will effectively be taxed twice over on this element of the running cost. If the manufacturer instead chose to reduce the car’s official list price, and show the extended service cost as a separate option, the driver would be taxed less.
The intricacies of option taxation is unlikely to be important when choosing a car. Far more important is the car itself, and the overall tax based on total price, fuel type and CO2 emissions.
Manufacturers package their accessories in a variety of ways and usually with little thought of tax efficiency. Car choosers need to be aware of the tax mechanism so that they don’t get caught out.
Company car tax is unforgiving over the list price of the car but some common sense can be applied to options which are required for the job or relate to running costs. Drivers and the payroll department need to remain alert and carefully analyse the total price of each company car.
By Rupert Russell, publisher of www.comcar.co.uk, a specialist company car tax website which now has tools to include or exclude the price of common options when comparing tax on different cars.