Company cars are a great perk, but company car tax rates can be confusing. That’s because the amount deducted from your payslip every month or week isn’t based simply on CO2 emissions – like VED car tax.
Your company car’s CO2 tailpipe emissions are an important element, but your tax calculation is also based on the car’s official list price, the value of optional extras, what type of fuel it uses, and even how and when the car is paid for and used.
But once you’ve figured out the basics it’s pretty simple to understand the numbers. Our easy to follow guide is here to help!
If a company car is supplied as part of your employment, and if you are able to use it for personal transport outside of work, then it becomes a taxable perk.
In official terminology your company car is a ‘Benefit In Kind’ (BIK), because your private use of the car has an actual monetary value. Her Majesty’s Revenue and Customs view that BIK as an addition to your income, because it is effectively paid for by your employer on top of your annual salary.
As with all earned income, you have to pay tax on it. One of the easiest ways to work out how much, is by visiting the HMRC website and looking at their company car tax calculator and help-sheet sections.
The starting point for working out the tax rate for the car you choose to run is its carbon dioxide (CO2) emissions, as different emission level bands are taxed different percentages of a vehicle’s P11D value. This value is the HMRC-recognised list price of the car including options added to the vehicle but without non-taxable items, which include the first year’s road tax and original registration fee.
If the car costs less to buy than the official P11D value it won't save you tax, as HMRC still says the BIK value is the same. The BIK value is reduced, though, if you have the car part-time or if you pay something towards its cost in the first place – so your company car tax charge should reduce too.
It’s important to note that company car tax bands are not the same as normal Vehicle Excise Duty car tax bands. In terms of BIK company car tax bands based on emissions, there are currently thirty different levels.
The least polluting company car models earn a five per cent BIK rate, while the highest polluters are taxed at 35 per cent. As the tax year changes, rates will change, too. So, from April 2016, electric vehicles (EVs) and ultra low-emissions vehicles - which were once exempt - will face a seven or 10 per cent BIK rate. To make things a bit easier, we’ve included a company car tax band table at the bottom of this page. This is for the 2016/2017 financial year after which the bands shift again.
Diesels currently have a three per cent surcharge over petrol models with similar emissions because they emit greater amounts of harmful particulates, so if you’re choosing between petrol and diesel for your next company car, you’ll need to work out whether or not you cover enough miles in a year to cover the extra cost of a diesel company car in the first place.
The amount of company car tax you actually pay is dependent on your annual salary. For example, if you fall into the twenty per cent income tax bracket, you’ll pay twenty per cent of the taxable portion of the car’s P11D value. Those in the forty per cent tax bracket, meanwhile, pay forty per cent on the taxable chunk of the P11D. This will usually be deducted from your monthly pay packet.
Here’s how to calculate your company car tax in three simple steps –
1) Take your company car’s P11D value (for example £15,000)
2) Multiply this value by the car’s company car tax rate which is dependent on CO2 emissions (for example 15%) to get your BIK amount
3) Multiply this BIK value by your personal tax rate - 20%, 40% or 50% - (for example 20%). This will be the amount of company car tax payable.
£15,000 x 15% = £2,250 (BIK amount) x 20% = £450 per year
If all the terms and jargon associated with company car tax are a bit confusing, we’ve put together a quick glossary to help you understand all the important bits…
• Benefit in Kind (BIK) - Benefits that are not included in an individual’s salary, one of which is the company car
• Her Majesty’s Revenue & Customs (HMRC) – The UK’s tax authority
• P11D – form that must be completed by an employer every year and sent to HMRC
• P11D value – Total value of the car including RRP, VAT and any extras such as metallic paint, sat nav or parking sensors.
• Recommended Retail Price (RRP) – This is the amount that the car manufacturer recommends that the car should be sold for.
• Vehicle Excise Duty (VED) – amount payable on all cars, including company cars, that is calculated based on CO2 emissions of the car
|CO2 emissions (g/km)||2015/2016 BIK rate (%) - Petrol||2015/2016 BIK rate (%) - Diesel|
|0 to 50 (inc. EVs)||7||10|