Tips & advice

Company car tax guide 2021/2022: 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 2021/22 Financial Year

A company car may no longer be the de-facto status signifier it once was, but fleet sales make up around half the UK's new-car market, and while not all those will be company cars driven both for business and personal use, it's clear both firms and employees still see them as a worthwhile perk.

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 and subject to a variety of percentage rates. These rates are determined by which tax bracket your salary puts you in and the car's value, plus its carbon dioxide emissions.

In short, if your salary puts you in the 20 per cent tax bracket and your car attracts a 25 per cent Benefit-in-Kind rate, you will pay 20 per cent of 25 per cent of its value (25 per cent of a £20,000 car = £5,000; 20 per cent of £5,000 = £1,000 BiK a year). 

Like most tax systems, Benefit-in-Kind rates are subject to change with each financial. And, as is usually the way with these things, taxation rates increase over time. 

Company car tax changes 2020/2021

Whoever coined the slogan that “tax doesn’t have to be taxing” couldn't have foreseen how involved Benefit-in-Kind (BiK) rates would become in the 2021/22 Financial Year (FY), which started on 6 April. 

As with the previous FY, 2021/22's rates are based on WLTP (World harmonised Light vehicle Test Procedure) emission tests, which see new cars assessed using tougher criteria than the old NEDC tests, and are intended to be more representative of a car's real-world performance.

As a result, WLTP assessments tend to produce higher on-paper CO2 (carbon dioxide) emissions NEDC regulations, with BiK percentage rates rising accordingly. To complicate matters further, however, WLTP emission tests were phased in for newly type approved vehicles, so two sets of BiK rates exist that aim to make things more fair.

These two systems see cars registered prior to 6 April 2020 subject to one set of BiK rates (known 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 leveling the playing field as these cars, like for like, will have on-paper CO2 emissions that are around 20 per cent higher (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. 

As a worked example, a diesel car with 121g/km CO2 emissions will attract a BiK rate of 29 per cent if it is RDE2 compliant and registered before 6 April 2020, with an extra four per cent if the car is not RDE2 compliant, and 28 per cent if registered after that date.  

Company cars tax bands 2021/2022

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

WLTP cars first registered from 6 April 2020 

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

However, to reflect the fact that WLTP CO2 rates are typically higher than NEDC rates for exactly the same model of car, the Treasury is knocking 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 will disappear completely in FY 2022/23.

This means that, even if your car was tested under WLTP and therefore has higher on-paper CO2 emissions than an equivalent NEDC-tested car, there will be no reduction in its BiK rate from April 2022.

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

What about electric cars?

Pure electric cars were not subject to Benefit-in-Kind tax in FY 2020/21, but for the In 2021/22 financial year they attract a BiK rate of one per cent, and in 2022/23 just two per cent. 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 newer diesels are RDE2-compliant cars, 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, can do around 25 miles on battery power alone and will have 49g/km CO2 emissions; such a car would attract a BiK rate of 13 per cent in FY 2021/22. 

A typical petrol car, registered after 6 April and subject to WLTP tests might emit 132g/km of CO2, attracting a BiK rating of 30 per cent, while a typical RDE2-compliant diesel might emit 120g/km, making its owner liable for a 28 per cent BiK rate.

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

In much the same way as with company car tax, WLTP measurements replaced NEDC CO2 readings for road tax (vehicle excise duty) in the last financial year.

But while BiK rates apply every year for company car drivers, only the first year of road tax is linked to CO2 emissions, with a flat rate for following years. Because of this, and because of the fact first-year road tax costs are typically lumped into a new car’s on-the-road price, any increased charges related to WLTP being used for road tax rates will not hit buyers as sharply in the wallet.

If, for example, a diesel car with CO2 emissions of 115g/km is non-RDE2 compliant the driver will pay £220 for the first-year of road tax, or £180 if the car is a petrol, or RDE2-compliant diesel. 

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 2021/22 – cars first registered from 6 April 2020

CO2 emissions (g/km)Electric range (miles)Appropriate percentage
0N/A1%
1-50>1301%
1-5070-1294%
1-5040-697%
1-5030-3911%
1-50less than 3013%
51-54N/A14%
55-59N/A15%
60-64N/A16%
65-69N/A17%
70-74N/A18%
75-79N/A19%
80-84N/A20%
85-89N/A21%
90-94N/A22%
95-99N/A23%
100-104N/A24%
105-109N/A25%
110-114N/A26%
115-119N/A27%
120-124N/A28%
125-129N/A29%
130-134N/A30%
135-139N/A31%
140-144N/A32%
145-149N/A33%
150-154N/A34%
155-159N/A35%
160-164N/A36%
165-169N/A37%
170+N/A37%

Full company car tax bands 2021/22 – cars first registered before 6 April 2020

CO2 emissions (g/km)Electric range (miles)Appropriate percentage
0N/A1%
1-50>1302%
1-5070-1295%
1-5040-698%
1-5030-3912%
1-50less than 3014%
51-54N/A15%
55-59N/A16%
60-64N/A17%
65-69N/A18%
70-74N/A19%
75-79N/A20%
80-84N/A21%
85-89N/A22%
90-94N/A23%
95-99N/A24%
100-104N/A25%
105-109N/A26%
110-114N/A27%
115-119N/A28%
120-124N/A29%
125-129N/A30%
130-134N/A31%
135-139N/A32%
140-144N/A33%
145-149N/A34%
150-154N/A35%
155-159N/A36%
160+N/A37%

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

Recommended

Transport secretary Grant Shapps confirms digital driving licences are on the way
Digital driving licence
Consumer news

Transport secretary Grant Shapps confirms digital driving licences are on the way

DVLA plans to offer a digital provisional driving licence by 2024, with full digital licences to follow at a later date
17 Sep 2021
Electric car charge points to be installed in every new home in the UK
Home charging point
News

Electric car charge points to be installed in every new home in the UK

England will be the first country in the world to introduce mandatory electric car charging points for new-build homes
10 Sep 2021
Government asks for more Smart Motorway safety data with revised Highway Code on the way
smart motorway
News

Government asks for more Smart Motorway safety data with revised Highway Code on the way

A revised version of the Highway Code will cover Smart Motorway driving, as National Highways pledges to improve data and monitoring
8 Sep 2021
E10 petrol explained: UK prices, checker tool and is it OK for your car?
Petrol pump
News

E10 petrol explained: UK prices, checker tool and is it OK for your car?

E10 petrol is up to 10 per cent ethanol and is available at UK fuel stations now as part of the bid to cut CO2 emissions
1 Sep 2021

Most Popular

Exclusive: banned 71-reg number plates released
Number plates
News

Exclusive: banned 71-reg number plates released

Latest DVLA list of banned UK registrations reveals which 71-plates are too rude for the road
21 Sep 2021
Genesis G80 vs Mercedes E-Class vs Lexus ES
Genesis G80 vs Mercedes E-Class vs Lexus ES
Genesis G80

Genesis G80 vs Mercedes E-Class vs Lexus ES

The Genesis G80 looks to make an impact in the executive saloon class as we pitch it against the Mercedes E-Class and Lexus ES
18 Sep 2021
'The death of cheap cars will be a travesty for personal mobility'
Opinion cheap cars
Opinion

'The death of cheap cars will be a travesty for personal mobility'

Our appetite for small, cheap cars is as strong as ever - although Mike Rutherford warns they may no longer be profitable
12 Sep 2021