The shortage of semiconductors has meant long delays in the delivery of new cars. This has caused many company car drivers to choose a second hand car instead, but what are the tax consequences?
Unless the car has zero emissions, the capital allowance rules are the same for new and used cars bought by the business. Plant and machinery capital allowances may be claimed on the purchase price of the car at either 18% or 6%, depending on whether the CO2 emissions for the vehicle are below or above 50g CO2 per km.
Where a zero-emission car is acquired by the business, a special 100% first year allowance only applies to new cars. There is however an exception for certain ex-demonstrator cars. HMRC accept a car is unused and not second hand provided it has been driven for a limited number of miles for the purposes of testing, delivery, and test driven by potential purchasers.
When calculating the P11D benefit of company cars the original list price inclusive of extras should be used, not the purchase price. Hence the P11D value for a second-hand company car may be significantly higher than the price paid for the vehicle.
ADVISORY FUEL RATE FOR COMPANY CARS
Unbelievably there were very few changes to the HMRC advisory fuel rates from 1 March 2022, which may not have been your experience at the filling station!
Now that the increased prices have fed through into the HMRC calculations there are some significant increases from 1 June 2022, as set out in the table below.
In cases where the employee pays for the car fuel, these mileage rates should be used by the employer to reimburse the employee for business journeys.
In cases where the employer pays for the car fuel, these mileage rates should be used by the employee to reimburse the employer for private mileage, if they want to avoid a fuel benefit in kind arising.
| Engine Size | Petrol | Diesel | LPG |
| 1400cc or less | 14p(13p) | 9p(8p) | |
| 1600cc or less | 13p(11p) | ||
| 1401cc to 2000cc | 17p(15p) | 11p(10p) | |
| 1601 to 2000cc | 16p(13p) | ||
| Over 2000cc | 25p(22p) | 19p(16p) | 16p(15p) |
Where there has been a change, the previous rate is shown in brackets. The previous rate can continue to be used until 30 June 2022, if so desired.
Note that for hybrid cars the appropriate petrol or diesel rate should be used.
