Tips & advice

Company car tax guide 2022/2023: everything you need to know

Company car tax is bound up in a complex net of emissions, salaries and a car's value; we explain how the system looks for the 2022/23 Financial Year

Hyundai Ioniq 5 front tracking

A company car is reckoned to be a significant perk by employees and the firms that hire them, which is why around half the cars on UK roads start their lives in company fleets.

But like many enjoyable things, company cars attract the interests of HM Treasury and are subject to tax, being treated as a Benefit-in-Kind(BiK) and subject to a variety of percentage rates. These rates are determined by which tax bracket your salary puts you in, the company car's list price, and the car’s individual BiK rate which is based on its official carbon dioxide (CO2) emissions.

For example, if your salary puts you in the 20 percent tax bracket and your car attracts a 25 percent BiK rate, you will pay 20 percent of 25 percent of its value.

25 percent of a £20,000 car = £5,000

20 percent of £5,000 = £1,000 BiK a year 

Like most tax systems, Benefit-in-Kind rates are subject to change with budget announcements. And as is usually the way with these things, taxation rates tend to increase over time, although if a government wishes to promote a certain type of car they can tweak the system to that effect - as is currently the case with electric/zero tailpipe emissions cars. 

Company car tax changes 2022/2023

Whoever coined the slogan that “tax doesn’t have to be taxing” couldn't have foreseen how involved Benefit-in-Kind (BiK) rates would have become in the 2022/23 Financial Year (FY), which starts on 6 April. As with the previous FY, 2023/23's rates are based on WLTP (World harmonised Light vehicle Test Procedure) emission tests for CO2.

WLTP assessments tend to produce higher on-paper CO2 emissions than older NEDC tests that were recently phased out. 

To fairly accommodate drivers of older company cars, two sets of BiK rates exist. These two systems see cars registered prior to 6 April 2020 subject to one set of BiK rates (known to your company accountant as NEDC-correlated rates), and those registered after that date (which will have been assessed under WLTP) subject to another. 

The set of rates for post April 2020 cars effectively knocks a percentage point off the BiK, with the intention of levelling the playing field as these cars, like for like, will have on-paper CO2 emissions that are around 20 per cent higher than older NEDC-tested equivalents (though this varies from model to model).

To make things even more complicated, diesel cars are subject to a four per cent BiK surcharge if they do not meet a component of WLTP emission regulations called RDE2 - although, to add yet more granularity, this surcharge does not apply to non-RDE2 diesel hybrids. 

Company cars tax bands 2022/2023

Cars first registered after 6 April 2020 

For cars that are first registered after 6 April 2020, WLTP CO2 figures will be used to determine BiK rates.

N.B. To reflect the fact that WLTP CO2 rates are typically higher than NEDC rates for exactly the same model of car, for FY 2021/22 the Treasury knocked one percentage point of BiK off the rates used for older, NEDC-assessed cars. This was two percentage points in FY 2020/21, and the dispensation has now disappeared completely for FY 2022/23.

Cars first registered from 6 April 2020  Financial year  
2020/212021/222022/23
Petrol, first registered from 6 April 2020, CO2 = 137g/km  30%31%32%
Annual tax liabilities  £1,800£1,860£1,920
Diesel, RDE2 non-compliant, first registered from 6 April 2020, CO2 = 120g/km  31%32%33%
Annual tax liabilities£1,860£1,920£1,980
PHEV, 29-mile EV range, CO2 = 44g/km, first registered after 6 April 2020  12%13%14%
Annual tax liabilities  £720£780£840
EV, first registered from 6 April 2020  0%1%2%
Annual tax liabilities  £0£60£120

NEDC cars first registered before 6 April 2020

For cars that were registered before 6 April 2020, NEDC-correlated figures are used when calculating Benefit-in-Kind tax rates.

The tables for these cars are different from the ones the Treasury previously projected it would use for 2020/21, with rejigged CO2 bands, and different percentage rates in many areas.

Predicated on a 20 per cent taxpayer and a £30,000 car; Group two cars assume a 20 per cent increase in CO2 figures, due to WLTP 

Cars first registered before 6 April 2020Financial year
2020/212021/222022/23
Petrol, first registered before 6 April 2020, CO2 = 114g/km  27%     27%27%
Annual tax liabilities  £1,620             £1,620£1,620
Diesel, RDE2 non-compliant, first registered before 6 April 2020, CO2 = 100g/km  29%29%29%
Annual tax liabilities  £1,740£1,740£1,740
PHEV, 29-mile EV range, CO2 = 37g/km, first registered before 6 April 2020  14%14%14%
Annual tax liabilities  £840£840£840
EV, first registered before 6 April 2020  0%1%2%
Annual tax liabilities  £0£60£120

What about electric cars?

Pure electric cars were not subject to Benefit-in-Kind tax at all in FY 2020/21, but for FY 2021/22 they attracted a BiK rate of one per cent, and now in our current FY 2022/23 that has risen to two per cent - with the rate frozen until 2025. This means company car drivers who choose an EV will save thousands compared with the driver of a comparable diesel.

What about the diesel surcharge? 

Diesel cars not meeting the RDE2 element of WLTP tests will continue to be subject to a four per cent higher BiK rate than petrol cars. Most diesels are RDE2-compliant now, though.

So is now the time to choose a pure-electric or plug-in hybrid company car?

Yes, if you can. EVs have the most attractive BiK rates, but plug-in hybrids (PHEVs) also attract less tax. A ‘typical’ PHEV, for example, might do around 25 miles on battery power alone and will have 49g/km CO2 emissions; such a car would attract a BiK rate of 14 per cent in FY 2022/23. 

A typical petrol car, registered after 6 April and subject to WLTP tests might emit 132g/km of CO2, attracting a BiK rating of 31 per cent, while a typical RDE2-compliant diesel might emit 120g/km, making its owner liable for a 29 per cent BiK rate.

What about road tax? Isn’t that increasing as well?

Vehicle Excise Duty (VED), more commonly known as road tax, is also designed to encourage greener driving, although in this case only the first year of road tax is linked to CO2 emissions, with a flat rate for following years. 

For the 2022/23 tax year VED rates have risen by 6 per cent, which is based on the rise in the Retail Price Index (RPI) - in other words, the annual inflation rate. Click here to check out the new VED rates in full

Guide to company car tax terms

  • BiK (Benefit-in-Kind): the tax on a non-salary perk such as a company car, provided by an employer to an employee.
  • CO2 (carbon dioxide): pollutant produced by cars with a petrol or diesel engine, measured in grams per kilometre (g/km), and used to set tax.
  • BiK rate: the percentage of a company car’s value that is taxed. The more CO2 a car emits, the higher its BiK rate.
  • NEDC (New European Driving Cycle): the old test procedure for measuring car emissions and fuel economy.
  • WLTP (Worldwide harmonised Light vehicle Test Procedure): the new economy and emissions test procedure; all new cars registered from September 2019 are assessed under WLTP.
  • RDE2 (Real Driving Emissions, Step 2): RDE emission tests take place on the road as an element accompanying the lab-based WLTP assessments. RDE2 sets stricter emission limits than the previous RDE1 standard.
  • Diesel surcharge: diesel company cars not complying with the RDE2 element of WLTP tests are automatically hit with a four per cent BiK increase compared with their petrol-engined equivalents.

Full company car tax bands 2022/23 – cars first registered from 6 April 2020

CO2 (g/km)

Electric range (miles)

2022-23 (%)

2023/24 (%)

2024/25 (%)

0

N/A

2

2

2

1-50

>130

2

2

2

1-50

70-129

5

5

5

1-50

40-69

8

8

8

1-50

30-39

12

12

12

1-50

14

14

14

51-54

 

15

15

15

55-59

 

16

16

16

60-64

 

17

17

17

65-69

 

18

18

18

70-74

 

19

19

19

75-79

 

20

20

20

80-84

 

21

21

21

85-89

 

22

22

22

90-94

 

23

23

23

95-99

 

24

24

24

100-104

 

25

25

25

105-109

 

26

26

26

110-114

 

27

27

27

115-119

 

28

28

28

120-124

 

29

29

29

125-129

 

30

30

30

130-134

 

31

31

31

135-139

 

32

32

32

140-144

 

33

33

33

145-149

 

34

34

34

150-154

 

35

35

35

155-159

 

36

36

36

160-164

 

37

37

37

165-169

 

37

37

37

170+

 

37

37

37

Find out about the tax benefits of double cab pick-up trucks here... 

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