Company directors can buy or lease a company car and then must pay tax on the vehicle if it’s used for personal driving. This is a very common approach, and one that directors all over the UK.
But what about having two company cars as a director? Is this possible and what are the implications? Is there a limit on company cars?
Can a director have two company cars? Yes, a company director can have two company cars providing you pay the relevant tax. There are no penalties for having multiple company cars, but it might not be the most tax efficient route to take.
Another consideration here is that by having two company cars, one can be driven by a spouse or partner who works for the business.
In a case like this, it would be more beneficial to split your income and cars between a couple to avoid paying tax at 40%, if the other has an allowance left at 20%.
If you both use the same car you could also split the benefit between you both which again could bring one of you out of the 40% bracket.
The bottom line is, yes, there’s no HMRC ruling that says a director can’t have 2 company cars, or even more for that matter. Providing you pay tax and national insurance on both, you can have as many company cars as you want.
There is no penalty for having a second, third or even fourth company car for an employee or director. The taxable benefit of each car is calculated as a percentage of its cost when new, based on its official CO2 emissions.
Company cars are thought of as being a highly taxed benefit which is true if you drive an expensive car with high CO2 emissions but with generous reliefs for electric and hybrid vehicles this can make a big difference.
| Vehicle | Tesla Model S Performance | Mercedes S-Class Saloon |
| P11D value | £94,990 | £82,965 |
| Emissions | 0g CO2 | 173g CO2 |
| 2022-23 monthly BIK cost @ 40% tax rate | £63 per month | £1,023 per month |
| 2023-24 monthly BIK cost @ 40% tax rate | £63 per month | £1,023 per month |
| 2024-25 monthly BIK cost @ 40% tax rate | £63 per month | £1,023 per month |
So theoretically you could have 16 Tesla Model S’s for the same tax charge as one Mercedes S Class. You couldn’t afford 16 Tesla’s but you get the point.
Having two or more company cars for a Director does not have to break the bank if you are careful in your choice of vehicle.
Whilst not a tax loophole having a company van rather than a company car does potentially bring some interesting tax savings.
A van for tax purposes is defined as a vehicle primarily constructed for the conveyance of goods or the burden of any description. A gross vehicle weight – fully laden – not exceeding 3,500kg.
Double-cab pick-ups and car-derived (kombi) vans add an extra layer of confusion. This is because while you might be using such a vehicle as a van, the additional row of seats means that HMRC may define it as a car.
In order to be classed as a “commercial vehicle” (and qualify for tax reliefs), it needs to have a payload of more than one tonne after seats and have a dedicated load area that is larger than the passenger area.
As an example, a Mitsubishi L200 Warrior would qualify as a van.
Yes, you can buy several types of vehicles through your business. You could buy a car, motorcycle, van, truck, and lorries. The tax rates and reliefs for each can differ so make sure you understand the rules before making a commitment to buy.
Company car rules for Directors
The company car rules for Directors are the same as they are for all other employees. There are no separate rules or exceptions for Directors of limited companies.
You’ll pay tax if you or your family use a company car privately, including for commuting.
You pay tax on the value to you of the company car, which depends on things like how much it would cost to buy and the type of fuel it uses.
This value of the car is reduced if:
- you have it part-time.
- you pay something towards its cost.
- it has low CO2 emissions.
If your employer pays for fuel you use for personal journeys, you’ll pay tax on this separately.
Handy Hint: There are some things you can do in order to reduce (if not avoid) paying tax on any company cars that you use.
P11D abolition of the £8,500 threshold
From April 2016 the distinction between ‘higher paid’ employees (including directors) and ‘lower paid’ employees is removed.
- Benefits In Kind provided to all employees will be calculated in accordance with the previous rules for ‘higher paid’ employees and directors and where appropriate will be reportable on forms P11D.
- Forms P9D will no longer exist.
- There are exceptions for ministers of religion and carers.
Conclusion
Whilst it might sound appealing to have two company cars, particularly if you want to give a car to your partner, the taxes might put you off doing so.
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Image in header via https://pixabay.com/photos/casablanca-cars-luxury-cars-hassan2-1650772/
Jon has been in business since 1999, and in that time worked with more than 300 small business clients. As well as being an accountant, he is also an early adopter of tech, and has helped small businesses to leverage the power of their computer systems by creating software to automate and simplify accounting tasks.
