Company car tax guide 2023/2024: everything you need to know

Company car tax is worked out using a vehicle’s emissions, its value, and your salary; this is how the formula applies in the 2023/24 Financial Year

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Company cars are a popular perk that companies use to sweeten employment offers when they’re recruiting. Company car tax, otherwise known as Benefit in Kind tax is the means by which the Government taxes the benefit of having a company car.

Because company drivers typically benefit from a brand new car delivered every two or three years, fully insured and with servicing taken care of, they’re saved from most of the hassle and financial planning that running a car means for private drivers.

It’s significant too, that although company cars are not cost-free for employees, it can often feel like a free ride as so-called ‘Benefit-in-Kind’ (BiK) taxes are deducted from salaries before they hit your bank account.

When all that’s taken into consideration, it’s no surprise that employees eagerly take up the offer of a ‘perk car’ from their company, even when they don’t need company wheels for the work they’re employed to perform. Indeed, it’s critical for company car tax purposes that you are allowed to use your company vehicle for personal mileage, which includes commuting. If you are only allowed to drive work mileage, there’s no benefit in kind, so of course you won’t be liable for tax.

How much company car tax will I pay?

To calculate the amount of company car tax you’ll pay on any given vehicle, you need to know three things:

1. Income tax band

This is determined by your salary

Tax band

Income

Tax rate (England/Wales)

Basic rate

Up to £50,27

20%

Higher rate

£50,271 to £125,140

40%

Additional rate

Over £125,140

45%

2. P11D value of your car

The officially-recognised list price of your company car is known as its P11D value.

It includes a car’s quoted list price, plus all options and extras as well as delivery charges. It doesn’t include road tax or first registration fees - or any dealer price discounting.

3. BiK percentage rate 

The taxable percentage of the P11D value for your particular make and model. Percentage rates depend on the level of its CO2 emissions and (where applicable) its electric-only range. The table below is published by HMRC, and rates are frozen until the 2024/25 tax year. 

Company car tax bands 

Petrol, diesel (RDE2 compliant) and hybrid powered cars for tax years 2023/24 and 2024/25

CO2 emissions (grams per km)

Electric mileage range

BiK %

0

2

1 to 50

130 and above

2

1 to 50

70 to 129

5

1 to 50

40 to 69

8

1 to 50

30 to 39

12

1 to 50

less than 30

14

51 to 54

15

55 to 59

16

60 to 64

17

65 to 69

18

70 to 74

19

75 to 79

20

80 to 84

21

85 to 89

22

90 to 94

23

95 to 99

24

100 to 104

25

105 to 109

26

110 to 114

27

115 to 119

28

120 to 124

29

125 to 129

30

130 to 134

31

135 to 139

32

140 to 144

33

145 to 149

34

150 to 154

35

155 to 159

36

160 to 164

37

165 to 169

37

170 and above

37

What about the diesel surcharge? 

Diesel cars not meeting the RDE2 standard of WLTP emissions tests are theoretically subject to a four per cent higher BiK percentage rate than petrol cars. All new diesels are RDE2-compliant now, though.

Example company car tax calculation:

Company car tax maths is quite straightforward.

  • First work out the taxable BiK value of your car, which you do by multiplying your chosen company car’s P11D value by its BiK percentage rate.
  • Then work out the tax you’ll pay annually, by multiplying the BiK value by your personal tax rate.

For a Basic rate taxpayer driving a car emitting 100g/km of CO2, with a PIID value of £30,000, the sums look like this:

  • Step one: £30,000 (PIID) x 25% (BiK rate) = £7,500 (BiK value)
  • Step two: £7,500 (BiK value) x 20% (Personal tax rate) = £1,500 (Your annual company car tax bill)

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 for electric cars

Pure electric cars were not subject to Benefit-in-Kind tax at all in financial year (FY) 2020/21, but for FY 2021/22 they attracted a BiK rate of one per cent, and now in our current FY 2023/24 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.

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 2023/24 tax year VED rates rose by 10.1 per cent rounded to the nearest £5, which was 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.

Thinking about making the switch to an EV? These are the best electric cars to buy...

Current affairs and features editor

Chris covers all aspects of motoring life for Auto Express. Over a long career he has contributed news and car reviews to brands such as Autocar, WhatCar?, PistonHeads, Goodwood and The Motor Trader.

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