It is well documented that running a business as a limited company can minimise your tax liabilities, however, to achieve this it is important to manage the company’s finances in a structured way.

Unlike a sole trader, who pays income tax and National Insurance on all profits in that year, a limited company allows you to pay yourself in a more tax-efficient way, using a mixture of salary and dividends.

At a4c we have produced the following guide with information on how to pay yourself, based on the 2024/25 tax rates and thresholds.


Why take a salary?

A monthly salary means that you have regular income throughout the year and because directors are ‘office holders’ you can pay yourself below national minimum wage, without breaking any rules.

Salary payments above £6,396 will be classed as a qualifying contribution towards your State Pension, which is important as you need 35 years of contributions to obtain this at retirement age.

Salaries are classed as a legitimate business expense and therefore your company will save Corporation Tax on these payments.


So how much salary should you pay yourself from your own limited company?

To be as tax efficient as possible, paying yourself as a company director is a bit of a balancing act.  There are a few things to consider:

  • The number of directors
  • The number of other employees and how much they earn
  • National Insurance rates for employers and employees
  • Income tax rates and thresholds
  • Tax allowances for dividends
  • Corporation Tax relief for employee salaries
  • Other sources of income
  • How organised you are with payments to HMRC!

In 2024/25 most directors will either pay themselves to the National Insurance threshold OR they will pay themselves to the Personal Allowance threshold.

1.    Take a salary up to the National Insurance threshold (£9,100)

If you can’t claim the employment allowance, because you are the sole director/employee, or want to keep things simple (we like simple!) then this is a good strategy for you.

The Employer’s National Insurance Threshold (Secondary Threshold) for 2024/25 is £9,100, therefore we would suggest a monthly salary of £758.

About this strategy:

  • You protect your entitlement to future state pension and benefits
  • There’s nothing to pay to HMRC each month in relation to National Insurance or Income Tax, meaning a reduction in admin and no impact to your cash flow
  • You save Corporation Tax (approximately £1,729 to £2,275, depending on profits)
  • The Personal Allowance in 2024/25 is £12,570 and the Dividend Allowance is £500 therefore with a salary of £9,100 you can take a further £3,970 in tax free dividends.

2.    Take a salary up to the Personal Allowance (£12,570)

If you have two directors on the payroll, or one director but another employee, then you could qualify for the Employment Allowance.  This enables you to claim £5,000 off your employer’s NI bill and therefore without any employer’s NI to pay you may benefit from a higher director salary.

You save more in Corporation Tax via this option.

The Personal Allowance for 2024/25 is £12,570, so we would suggest a monthly salary of £1047.

About this strategy:

  • You protect your entitlement to future state pension and benefits
  • If you have others on the payroll you may have to make tax and NI payments to HMRC each month, which is an additional admin burden and could impact your cashflow.
  • You save a larger amount of Corporation Tax (approximately £2,388 to £3,142 depending on profits)
  • You still have a £500 Dividend Allowance, for further tax-free withdrawals from the company.
  • If you are a sole director, you won’t be able to claim the £5,000 Employment Allowance. This means a salary of £12,570 will cost you £478 in National Insurance.

3.    Pay a higher salary of your choosing

Some people like to take a higher salary, for instance this works where the business may not have sufficient profits to pay guaranteed dividends, or for mortgage or visa requirements.

Whist you save Corporation Tax on the salary payments (19% to 25% depending on profits), you will be paying income tax, employee’s National Insurance and possibly employer’s National Insurance, which will almost certainly be greater than the Corporation Tax savings.

It’s not a route we recommend, but we are happy to discuss this, if you think it might suit your circumstances.


Rates and Thresholds in 2024/25

National Insurance (NI)

Description

Threshold

Lower Earnings Limit (LEL)

Salary above this qualifies towards State Pension

 

£6,393

Primary Threshold

The point at which employees start paying NI on any earnings above the threshold

 

£12,570

Secondary Threshold

The point at which employers start paying NI at a rate of 13.8%

 

£9,100

Upper Earnings Limit (UEL)

Earnings above the Primary Threshold up to (and including) the Upper Earnings Limit incur NI at a rate of 8%

 

£50,270

Earnings above the Upper Earnings Limit

Salary above this incurs NI at a rate of 2%

 

£50,271

Employment Allowance

Employers can claim up to this amount to cover their employer’s NI.  To be eligible there must be at least 1 employee or 2 directors on the payroll.

 

£5,000

 

Income Tax

The table below shows the income tax rates and band thresholds for 2024/25 in England, Wales, and Northern Ireland.   Be aware that Scotland uses different tax bands and thresholds!

Tax Band

Tax Rate

2023/24

Personal Allowance*

 

0%£12,570
Basic Rate

 

20%£12,571 – £50,270
Higher Rate

 

40%£50,271-£125,140
Additional Rate

 

45%£125,141 upwards

 

* It is worth noting that income over £100,000 leads to a reduction in your personal allowance and for income over £125,140 the personal allowance is £nil.

Corporation Tax

From April 2023 Corporation Tax rates changed.

  • There will be a small companies tax rate of 19% for profits under £50,000.
  • Profits above £250,000 will be taxed at 25%
  • In between there will then be an effective rate of tax of 26.5% (profits between £50,001 and £250,000)

Why is the effective rate of 26.5% higher than the main rate of 25%?

This is to ensure that when profits exceed £250,000 that 25% is charged on the full amount, for example:

  • Profits of £250,000 taxed at 25% = £62,500
  • First £50,000 taxed at 19% = £9,500
  • Next £200,000 taxed at 26.5% =£53,000
  • £9,500 + £53,000 = £62,500

Estimating your Corporation Tax liability within the year will be more complex from and therefore we urge you to save as much as you can towards this liability.  The final Corporation Tax bill will be confirmed when your annual accounts and tax returns are prepared at the end of your Company’s financial year.

 

Dividend Tax

The amount of tax you pay on dividends depends on your total income, and how much of that income is specifically from dividend payments. The good news is that you don’t pay NI on dividends!

You can use allowances to reduce the amount of tax paid on your dividends.  The first is any unused personal allowance (in 2024/25 this is £12,570) and then there is the dividend allowance.  In 2024/25 this drops to £5,000.

The table below shows the tax rates for dividends for each tax bracket:

Tax Band

Tax Rate

Total Income

Dividend Allowance0%£500
Basic Rate8.75%£12,571 – £50,270
Higher Rate33.75%£50,271-£125,140
Additional Rate39.35%£125,141 upwards

 

Remember that dividends can only be paid out to shareholders where there are company profits.  It’s important not to withdraw more money than is available, as you could be hit with an additional Corporation Tax charge (S445 @ 33.75%).


Salary / Dividend Illustration

In the illustration below we’ve demonstrated the maximum amount you can take in dividends, whilst remaining in the Basic Rate Threshold (where dividends are taxed at 8.75%), along with income level examples at £60k and £80k per annum.

2024/25

Max Income to Basic Rate Tax Band £50,270Illustration based on £60k IncomeIllustration based on £80k Income
Director’s Remuneration£9,100£9,100£9,100
Dividends using remaining Personal Allowance threshold (£12,570)£3,470£3,470£3,470
Dividends using Dividend Allowance£500£500£500
Dividends to Basic Rate Threshold (£50,270)£37,200£37,200£37,200
Dividends falling within the Higher Rate Threshold (>£50,270)£0£9,230£29,230
TOTAL DIVIDENDS£41,170£50,900£70,900
Total Gross Income£50,270£60,000£80,000
Tax on Dividends @ 8.75%£3,255£3,255£3,255
Tax on Dividends @ 33.75%£0£3,115£9,865
Total Tax on Dividends£3,255£6,370£13,120
Amount of tax to save monthly£272£531£1,094
NET CASH IN POCKET£47,015£53,630£66,880
Income kept %93.5%89.4%83.6%

 

  • This assumes there is no income from any other source
  • Dividends are either paid or declared between 6th April 2024 and 5th April 2025
  • You are on a standard 1257L tax code (not on a Scottish tax code)
  • You don’t have a contract that falls within IR35
  • The company has sufficient profits (after Corporation Tax) to declare dividends at the required level
  • There is a PAYE scheme in place

 

Remember, that in addition to the tax due for 2024/25, payments on account will be required for the 2025/26 tax year. 50% payable in January 2025 and 50% payable in July 2025 – based on the previous year’s tax bill.


Other Tax Planning Options

 

You might want to consider the following, for efficient tax planning in the year ahead, if you haven’t already done so:

  • Your company can claim the cost of your salary when it calculates its Corporation Tax.  As a result, it will save Corporation Tax at up to 25% on any salary taken.
  • Company contributions into your Pension Scheme and having a Relevant Life Cover policy in place will also save up to 25% in Corporation Tax.
  • The company can pay up to £500 for Pensions Advice.
  • Beware of the high-income tax benefit charge if you claim Child Benefit payments and you or your partner earn over £60k, as you could end up paying this back to HMRC!
  • Remember to claim for reimbursement of all legitimate business expenses.
  • Don’t forget your Trivial Benefits! (http://a4cgroup.co.uk/trivial-benefits/)
  • Unlike sole traders, the company does not have to pay out all available profits at one time – dividends can be managed to minimise your personal tax liability and any retained earnings left in the business, when you’re ready to close, may be eligible for Business Asset Disposal Relief (previously known as Entrepreneurs Relief) which is taxed at 10%.

When it comes to personal tax there is no ‘one size fits all’.

If you wish to discuss any of the information contained within this guide, then don’t hesitate to get in touch and we’d be happy to book a call / online meeting / face-to-face meeting at our office in Redhill.

The current tax year ends on 5th April 2024, which doesn’t leave much time for any tax planning…


If you are the director of a limited company then here are some suggestions on how to save tax:

£12,570 Personal Allowance

This is the amount most people can earn tax free, between 6th April 2013 and 5th April 2014.

For most limited company directors this tax free allowance will have been used up by your monthly salary payments.

£1,000 Dividend Allowance

On top of the personal allowance above, you can receive £1,000 in dividends tax free.

Over this amount you’ll need to pay Dividend Tax (8.75%, 33.75% or 39.35% depending on your tax band).

Remember that dividends are the distribution of profits from your limited company – after Corporation Tax.  So your company needs to be making a profit or have retained earnings for dividends to be declared.

Dividend Timings

Dividends are considered part of your income for personal tax purposes either when they are paid or when they are declared (the earliest date applies).

This means that you can declare dividends in the 2023/24 tax year to fully utilise your allowances, but you could actually take the money out of your business bank account in a later tax year.

Any unpaid expenses?

Your limited company should reimburse you for any legitimate business expenses that you have paid for personally (such as mileage, professional subscriptions, home working allowance etc).

Therefore if you haven’t repaid yourself these costs throughout the year, you can extract this money from your company now, free from tax.

Remember that all expenses must be “wholly, exclusively and necessarily” incurred in the performance of your duties and you should keep evidence of the costs being claimed.

£100k Personal Allowance Reduction

If your income exceeds £100,000 during the tax year your personal allowance will reduce by £1 for every £2 earned, until £125,140  which in most cases is when it’s removed altogether.

Therefore if your income levels are close to this and you would normally take dividends with your salary at the end of March, you might want to consider delaying the payment until 6th April, thereby making the dividend payment fall into the next tax year.

Of course if your earnings are expected to remain the same or even increase in the 2024/25 tax year then you push the problem forward, but this is wise tax planning if it looks like you might have some downtime ahead!

Pump up your pension…

If your personal income is likely to push you into the higher tax band then pension contributions are a great way of reducing your liability, as well as saving for your future.

If paid from the limited company they also reduce it’s Corporation Tax bill so win : win!

If you don’t yet have a pension in place and need some advice then get in touch asap and there might just be enough time to get you a pension in place before the tax year end.

Profits don’t have to be taken!

Don’t feel that you always have to remove available profits from your limited company.

If the money is not a necessity to fund your living requirements, then you can leave the profits in the business and declare dividends in later months or years.

Remember if you work as a contractor then you may need to keep reserves in the business to support you in between contracts, known in the sector as a war chest for time on the bench!

How and when is personal tax paid?

If, based on the above, you have personal tax to pay then you will need to declare this in your 2023/24 self assessment tax return.  This needs to be filed with HMRC, with your tax paid, by 31st January 2025.

Further reading…

For more information on self assessment tax returns visit the HMRC guidelines at https://www.gov.uk/self-assessment-tax-returns.

Help, my Corporation Tax bill has increased due to a S455 tax charge. What is this and what can I do?

Many years ago, if you had your own company, it was possible to build up wealth in that company and then lend it to yourself indefinitely, thereby putting off the date it would become subject to income tax.

HMRC were long aware of this ploy and in 2016 extended the rules with all Director Loan Account (DLA) transactions in close companies being brought in to scope of the anti-avoidance legislation under Section 455 of the Corporation Tax Act 2010 (S455).


What are the rules?

If your company lends you money (posted to your DLA) and this is not repaid within 9 months of the company’s financial year end, then you will have to pay a S455 Corporation Tax charge.

The S455 charge is currently 33.75% of the loan value, ouch!

How can I avoid this S455 tax charge?

To totally avoid any charges you should clear your DLA within 9 months of the financial year end.  There are a few options to do so:

1) Assuming the company has sufficient profits, you can declare a dividend to clear the Director’s Loan Account.

2) If you don’t have available profits for a dividend, then you can repay the money into the business bank account from your personal account.

3) If you don’t have the funds personally then you may need to consider borrowing from friends / family, taking out a loan, or selling personal assets to raise funds.

Note.  If you repay the director’s loan then you cannot withdraw the funds again until after 30 days has passed, otherwise the charge still applies.

What happens if none of those options work?

In the event that the loan is not repaid within 9 months of the financial year end you will have to pay the Corporation Tax charge, which will also be due to HMRC 9 months after the financial year end.

The good news is that once the Director’s Loan Account has been repaid, perhaps by declaring dividends from future profits, then the S455 tax charge can be reclaimed from HMRC.  This can take over a year however so best to try and avoid the situation in the first place!

Why have I not seen this before?

This legislation has been around for a while and we frequently mention this in our annual salary guides, in newsletters and on the website, however within a4c we have noticed a dramatic increase in the number of directors borrowing more money than is available from their companies, possibly driven by the current cost of living crisis.

How can I protect myself?

It is important to remember that, if you are the director and shareholder of a limited company, the company money is not your money.

Whilst you might look at the company bank balance and believe that funds are available for you to withdraw, it is important to remember that your taxes must be paid first, including Corporation Tax, PAYE, CIS and VAT.  After this your suppliers will need paying along with any finance agreements / bounce back loan payments etc.

Can a4c help me?

Assuming that your accounting records are kept up to date in Xero, then we can review the available funds with you to determine if you are at risk of incurring a future S455 charge.

We can enable the account watchlist feature in Xero too, so that you can see the running balance of your Director’s Loan Account on the Xero Dashboard.

Understanding your numbers can feel daunting however we are always available to help explain how your accounts work, so that you can feel in control.

Please don’t hesitate to get in touch if you have any questions or would like to book a review meeting with Esther.

What is the VAT threshold and when do you need to register for VAT?

The VAT threshold is currently £85,000.  Your business must register for VAT at the point that your rolling 12-month turnover exceeds this threshold.

Some businesses may choose to register for VAT voluntarily before they hit £85,000.


What is a rolling 12-month turnover?

It is the total you’ve received in sales income in the last 12 months.

Many people get caught out because they think the threshold applies to a calendar year or business trading year but that’s not the case.

Generally speaking, when your monthly income exceeds £6,500 you need to keep a close eye on things.

Our advice is to create a spreadsheet which shows the monthly turnover for the last 12 months, then each month you add the latest month’s total income to the bottom of the list and then deduct the income from the month at the top of the list, you’re always getting a total for the rolling 12 months.

For example:

MonthTurnoverRolling 12-month totalRolling 12-month totalRolling 12-month total
1£5,000.00£81,920.00XXXXXX
2£5,100.00£84,770.00XXX
3£6,500.00£87,820.00
4£7,000.00
5£7,200.00
6£6,500.00
7£7,100.00
8£7,000.00
9£7,150.00
10£7,500.00
11£7,870.00
12£8,000.00
13£7,850.00
14£8,150.00
15£7,500.00
16£7,825.00Register for VAT from the 1st of this month

 

When do you need to register from?

You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.

 

How do you register?

There’s an online form to complete, which can be found here – https://www.gov.uk/register-for-vat

How long does the VAT number take to arrive?

Currently the VAT registration number is posted to businesses within 4 weeks of the registration submission.

You should inform your customers straight away that you’re registering for VAT.

Can invoices be sent before the VAT number arrives?

Yes, you should start including a 20% uplift in your sales prices from the date of your VAT registration, however you cannot issue a VAT invoice until you have your VAT number.

The best way to manage this is to send customers a pro-forma document, this should include the VAT element.  Then once your VAT number is confirmed you can re-send a VAT invoice.

For example:

Proforma Invoice

Net£1200
Total£1200

 

VAT invoice

(re-issued once the VAT registration number is confirmed)

Net£1000
VAT @ 20%£200
Total£1200

 

When will the first VAT return be due?

At the point of registering for VAT you will have selected which quarters you want to work within, these are the three months ending as follows:

  • March, June, September, December
  • April, July, October, January
  • May, August, November, February

 

Your first VAT return will be at the end of the current quarter.  You have a month and 7 days to prepare and file your VAT return.  For example, a VAT quarter that ends on 30th June will need the VAT return to be filed by 7th August.

How are VAT returns filed?

HMRC requires all VAT returns to be prepared and submitted using Making Tax Digital compliant software.

At a4c we provide clients with Xero accounting software.

We love this software for its ease of use and efficiency when recording accounting transactions and having key business reporting at your fingertips.


More help

If you need to register for VAT or have any questions about the VAT registration process then please feel free to get in touch on 01737 652 852.

The advice that we give will only be as good as the information, upon which it is based. 

We respectfully request that as a client of a4c you commit to the following, in order to give us the best chance of providing you with relevant advice and first-class accounting services:

  • Please ensure that you provide accurate and complete data regarding your sources of income and expenditure, for trading businesses, this includes bank statements to confirm balances at the financial year end
  • Where applicable, book-keeping software, such as Xero, will need to be kept up to date, with bank feed connections maintained
  • Receipts / supporting paperwork for purchases and loan agreements should be provided electronically by email or submitted to Dext / Xero, as appropriate
  • If you are bound by the rules of the Construction Industry Scheme, then we require evidence of payments in the contractor / subcontractor chain 
  • From time to time we will raise queries with you by email / telephone in relation to our accounting services and we request that you respond to these requests for information within a timely manner (ideally within a day or two).

Don’t be afraid to ask…

Often people are embarassed to ask questions, due to a fear that they should already know the answers.  At a4c our approachable team will ensure that your queries are dealt with in a sympathetic and understanding way.  We do our best to remove the stuffy accounting jargon, to explain things to you in clear terms.

If you need clarification on any of the above then get in touch on 01737 652 852.

The Government Gateway is a central place where you can register to use online government services.

This registration system was changed on 07/07/22 to allow driving licenses to be used to verify your identity, which has made registering for a Government Gateway account far easier for you.

Do I need one?

It is not mandatory, but we would recommend creating an account to all our clients.  It’s free to do and gives you visibility of your tax position.

You may find that you need to create one automatically in the following circumstances:

– You are required to send a self-assessment tax return

– You have set up a private limited company that needs to pay corporation tax

– You operate a business where you have started to employ people

– You operate a business that needs to charge Value Added Tax because your taxable revenue is over £85,000

 

How do i set up my Government Gateway account?

  • Visit the HM Revenue & Customs – GOV.UK website
  • Search Government Gateway then select HMRC services: sign in or register
  • You’ll need at 2/6 of the following identifications to verify you to register:

– Tax credit claim details

– P60 or most recent pay slip

– UK passport

– Information on credit file (such as loans, credit cards or mortgages)

– A self-assessment tax return (within the last 3 years)

– GB driving licence (from DVLA or DVA)

  • Remember your log in ID and password! This is VERY important as you are only shown your Government Gateway login number once, so we strongly recommend that you take a screen shot or write it down.

 

What are the benefits to me?

A Government Gateway account enables you to have full access of HMRC online services, which lets you view your:

– Personal tax account

– Business tax account

– Pay As You Earn (PAYE) tax

– Pension schemes

– VAT

– And more…

Having a Government Gateway login will also ensure that all submissions made online are secure, so no more hassle of mailing important documents to HMRC only to find they have been lost in the post.

This online service provides a free, simple and quick method of submitting your important documents to HMRC.

For more information feel free to call the a4c Team on 01737 652 852.

Running your own business is extremely exciting, but can also seem a little daunting.

There is plenty of information available to you online, but knowing where to look and trawling through irrelevant content can be very time consuming, not to mention confusing.

At a4c we have created this simple, straight-talking guide to highlight the most important things you need to know as a business owner, but we are also on hand to answer any questions you may have.

Record-keeping

There is a legal requirement for businesses to keep financial records (money spent and money received, assets owned, debts or loans, stock levels etc).

Evidence is required in original format, i.e. the receipt or invoice, and records must be kept for at least 6 years.  Failure to do so can result in a fine from HMRC.

Calculating Profits

You may have heard the phrase ‘income less expenses equals profits’.

This is the foundation that your trading accounts are built on. The tax you pay will be calculated from the profit.

Income

Income is also referred to as Revenue or Turnover.

This is the value of sales made for the provision of your products or services.

The simplest way to record these transactions is by issuing invoices and checking that funds entering your bank account match the invoice total.

Expenses

There are a wide-range of items that can be classed as expenses.

These could include items used by the business such as equipment or materials, it might cover the purchase of postage stamps, or paying bills such as insurance premiums and accountancy fees.

The key with expenses is that they are incurred ‘wholly, necessarily and exclusively’ in the line of business. (This is a HMRC term you will come across frequently.)

Managing your time

Most business owners would agree that the downside to running your business is the administrative burden.

At a4c we aim to relieve as much of the stress as possible but there will still be elements that rely on your input.

The key to success is being organised from day one and putting simple processes in place that you can stick to, such as Xero Accounting Software and  the Dext receipt management app.

If in doubt…

Remember that a4c offer our clients unlimited accounting support, therefore if you have any questions about your accounts or business transactions then please don’t hesitate to give us a call on 01737 652 852 or email info@a4cgroup.co.uk

Probably the question we get asked the most within a4c!

Small Business Tax Relief

The government has plenty of tax reliefs available to small business owners​ and so we’ve listed below those most applicable to you….

(And remember, where we prepare your tax returns, we’ll include any tax reliefs applicable, as part of our tax return production process.)

Capital Allowances​

You can claim Capital Allowances when you buy assets that you keep to use in your business. This includes equipment, machinery and business vehicles (known as “plant and machinery”). You can deduct some or all of the value of the item from your profits before paying tax.

Annual investment allowance​

Annual Investment Allowance is a form of Capital Allowance. You can deduct the full value of an item that qualifies for AIA from your profits before tax. One major exception is business cars. The criteria is strict, so be sure to research thoroughly.

Business rates relief​

Some business properties may be eligible for discounts on business rates. There are eight possible reliefs, which you apply for through your local council.

Employment Allowance​

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000. If your employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year, you may be eligible.

Creative Industry tax reliefs​

If you are a creative business, you may be eligible for one of eight corporation tax reliefs. These allow eligible companies to claim a larger deduction or, in some circumstances, claim a payable tax credit when calculating your taxable profits.

Business Asset Disposal Relief​

You may be able to pay less Capital Gains Tax when you sell all or part of your business. Business Asset Disposal Relief (previously known as Entrepreneur’s Relief) enables you to claim 10% on all gains on qualifying assets.

R&D tax credits​

Research and Development (R&D) is a tax relief that can reduce a company’s tax bill or provide a cash sum based on how much a company spends on R&D. The scheme specifically looks at businesses that are advancing science or technology.

 

For more information on these reliefs, or other ways to save tax, then get in touch:

 

01737 652 852

info@a4cgroup.co.uk

 

I am sure you are aware of what a company car is and how it can benefit you. But this guide will break down the options you have when owning a company car and whether electric is the way to go…

Types of electric cars

There are three different types of electric cars:

  • PEV / BEV (Battery Electric Vehicle). A Vehicle that purely runs on an electric battery which gives out zero emissions.
  • HEV (Hybrid Electric Vehicle). A Vehicle that runs on a petrol- or diesel-powered engine and also a small electric battery which usually has a range of only a few miles.
  • PHEV (Plug-in Hybrid Electric Vehicle). A Vehicle that has a large electric battery which needs to be charged from a source, but in turn has a higher range of up to 280 miles.

 

Benefits of having an electric car

Road Tax

Not only is it good for the environment it is also good for your bank account!

Owning a PEV / BEV means you do not have to pay any road tax (Vehicle Excise Duty) and for HEVs and PHEVs the road tax is likely to cost between £0 – £150 depending on Co2 emissions.

Capital Allowance Tax Relief

When buying an electric car, you can claim 100% of the cost of the vehicle to be offset against Corporation Tax or Income Tax in the year of the purchase.

You can also claim a 100% first year allowance for Charging-Ports, meaning that your business can pay for the installation of a charging port for your electric car at your house! But only up until the 31st March 2023 for corporation tax and the 5th April 2023 for income tax.

Running Costs

With the cost of fuel increasing weekly it is proving far more cost efficient to travel by green power (albeit electricity costs are also on the rise!)

Congestion Charges

The daily charge for driving within central London is now £15 per day, including weekends!  Where a car is pure electric or Co2 emissions less than 75g/km you  can receive a 100% congestion charge discount.

London’s Ultra Low Emission Zone

The ULEZ came into force a couple of years ago and requires drivers to pay a fee to drive within the zone.  Electric cars are exempt from this.

 

Company Car Tax – P11d Reporting

As you may be aware, a P11d is used to report to HMRC instances where employees (including directors) have received a personal benefit in kind, this includes company cars.

The employee then pays tax on the benefit in kind (BIK) value and the business pays Employer’s NIC.

Cars with petrol engines have a BIK rate, based on their Co2 emissions, this can be anything up to 37% of the value of the vehicle.

For diesel engines the BIK rate is as above, but with a 4% surcharge!

Hybrid cars have a lower BIK rate, depending on their mileage range.

Pure electric cars have a BIK rate of 2% (this was 0% for a few years but has recently increased and is set to hold at this rate until April 2025).

Here are some popular brand examples and their BIK rates:

37%  VW Golf GTI 2.0 TSI

31%  BMW 120d M Sport

12%  Toyota Prius Plug-in Hybrid

2%  Tesla, any model

 

So how much will a company car cost you in tax?

For an example on how to calculate the benefit in kind tax due on your car visit our online company car tax guide.

Simply take the value of your chosen vehicle, apply the BIK rate and use the formulas to calculate the potential Tax and Employer’s NI due.

For further information, or if you have any questions then do not hesitate to contact us:

  • 01737 652 852
  • info@a4cgroup.co.uk