IF YOUR business provides your employees or directors with a car for business and private use, it is taxed – provided the employee or director earns £8500 or more per year.
This is known as company car tax.
Private use includes commuting – and the car merely has to “be available to you” for private use.
Company car tax is sometimes called benefit-in-kind tax (BiK in shorthand).
The taxman believes you are getting an additional benefit outside of work from work-supplied equipment, so he taxes you on it.
The amount of company car tax you pay is broadly determined by:
- The list price of the car and any accessories fitted to it.
- The car’s carbon dioxide (CO2) emissions.
- The type of fuel the car uses.
- The highest rate of income tax you pay (20% or 40%).
Generally, the higher the CO2, or list price, or your income tax, the higher your company car tax bill will be.
So a low-emission cheaper car will be more tax-efficient than an expensive and less economical model.
In broad terms the CO2 emissions and list price (P11D) determine the benefit in kind charge. This amount is added to your earnings as a cash value and then taxed as part of your overall income. Depending on your level of income, some of this will be taxed at 20%, and some at the higher 40% rate.
- You can find out how much the benefit in kind charge will be on your car by using our Tax Calculator, located at the bottom right of our menu bar. Alternatively, click the highlighted link: Company car tax calculator.
- We have more on company car tax in our special download which shows the company car tax bandings up to an including 2012/13. Click on the link to begin the download: Company car tax tables 2010-13.
- There is additional detail on the changes to benefit in kind company car tax allowances. Click on our Company Car Tax tables page.
- Further guidance is at www.HMRC.gov.uk