One of the benefits of running your own business is being able to get a company car. Yes, there are tax implications, but for some business owners, it makes sense to get a car through their limited company.
But what about your family members? For example, is it possible to get a company car for a director’s wife or husband, and if so, how does that work?
As with anything like this, it’s not cut and dry, so here’s a short answer followed by the reasons and possible routes to take.
Can I give my wife a company car? Your company can give your wife a company car if she works for the business, but there will be tax implications and it might not be worth it. If your wife does not work for the company, you could buy her a car, but you will pay income tax on the provision.
Sounds complicated?
That’s because it is, and it will depend on the scenarios as explained below.
1. Buying a company car for a director’s wife who works for the business
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.
You must be careful with this one. If the spouse’s total package, including any wage and benefits taken from the company, was justified by the duties they performed for that company then the company car would be taxed on the spouse.
If the spouse does not meet these requirements the car will be treated as being provided to the Director and will therefore be taxed on them.
It is not enough to merely put the spouse on the books they must perform duties in line with what would be expected to get such a financial package from the company.
A difficulty can arise where two members of the same family or household are both employed by the same employer and where a company car is provided without being shared by the two individuals. Where two or more members of the same family work for the same employer and each is provided with a company car, the general principle is that each is only taxable in respect of the car made available to them (ITEPA 2003, s. 169).
Example
Dave is a director of his own company, and his wife Daphne also works for the company. Dave pays tax on his own company Audi. Daphne is also provided with a company car, even though her role is a junior one. Her car is a Volkswagen Polo.
Without special rules, there could be a double tax charge in respect of the Polo. Daphne would face a potential tax charge because of having the car available for her private use. Dave could also face a tax charge on the basis that a car is made available to Daphne by reason of Dave’s employment.
If HMRC could show that the car was not provided by reason of Daphne’s employment, but was provided by reason of Dave’s employment, then Dave alone would face a tax charge. This may of course mean that tax is payable at a higher tax rate than would have applied if only Daphne had faced a tax charge.
It may be possible, however, to show that the car is also made available by reason of Daphne’s employment.
2. Buying a company car for a director’s wife who DOES NOT work for the business
If it is not possible to justify your wife having a company car that would fairly reflect the total package of the position held in the company, you will need to consider another option.
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.
So, you could provide the Director with two company cars. The amount of tax you pay for the benefit in kind is based on your tax rate multiplied by the taxable benefit of each car. The value of the benefit in kind is added to any other taxable income to decide which tac rate you use.
Having two vehicles could push you into the higher rate tax bracket of 40% so structuring your income in another way such as your wife having a company car can reduce the tax burden on both parties to 20% given the right circumstances.
If you are both already 40% taxpayers, then it does not matter who the company car is charged against from a tax point of view as the overall outcome of tax paid is the same.
Calculating the benefit in kind on a company car considers the CO2 emissions of the vehicle. Buying the right type of company car such as an electric or hybrid model could in fact allow the Director to have two company cars and not affect his overall position too much.
Another option could be using a van for a company car as the benefit in kind tax on that is fixed offering a much cheaper alternative than a car.
FAQs on company cars for wives, husbands, and partners
Who is entitled to a company car?
Nobody is automatically entitled to a company car when they work for a limited company. The employees who get company cars are ultimately decided by the directors of the business.
Can my spouse drive my company car?
It might be possible for your spouse to drive your company car, but it will depend on the company. For example, if the business has an additional driver policy, it might extend to insuring your spouse, partner, husband, or wife to also drive it.
As with anything like this, always make sure to clarify it with your employer before letting your spouse drive your company car.
Can a director have two company cars?
Company directors can have two company cars. However, the caveat is that you always 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.
Conclusion
There is nothing wrong with providing a spouse with a company car provided they work for the company, and it is in line with a total package expected for the role.
A Director of a company can also have more than one company car and will be taxed on both vehicles.
The type of car you drive, and your total income are key to understanding which option is best. The only way to understand the full facts is to run a few scenarios and see what works best overall. Taking the time to work through it before making such a large purchase could save you a lot of problems and cash in the long run.
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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.
