Anyone earning over £8500 a year and who gets a company car that’s also available for their private use has to pay company car tax. If you get free fuel, that’s taxed too. But how do you work it out? And how do you keep it down?
To access a handy printable PDF version of this factsheet, simply complete your details below
What factors affect the company car tax you pay?
The amount of tax you pay is based on a combination of the vehicle’s list price and its carbon dioxide emissions, although different rules apply according to the type of fuel used. These are:
- Petrol cars: standard rate
- Petrol-electric hybrid cars: standard rate
- Diesel cars: standard rate + 3% surcharge (until the end of the 2016/17 tax year)
- Diesel-electric hybrids: standard rate (NO diesel surcharge)
- All electric cars: Zero rated (until the end of the 2014/15 tax year)
How is the company car tax calculated?
Company car tax treats the car as a ‘Benefit in Kind’ (BIK).
Why should you read this?
- You’ve been given a company car and you need to know about company car tax
- You want to know the tax you’ll pay on different cars
- You want to minimize your company car tax bill
You are taxed on this benefit according to two criteria: the so-called P11D value of the car, and a percentage applied to this based on the car’s CO2 emissions. (Click here for a table showing how emissions relate to the percentage you must use in your calculation.)
So: BIK = P11D value x CO2 emissions based percentage
But where do you get these numbers, and what’s the P11D value?
P11D value is the is the recommended retail price (including VAT and delivery) of the car, plus any optional extras over £100 that you decide to add, like sat nav, an upgraded audio system or even metallic paint. VED and first registration fee aren’t included.
company cars are taxed as a Benefit in Kind
The CO2 percentage will be in all the car’s literature and marketing material. It’s expressed in grammes per kilometre (g/km).
Having now worked out the Benefit in Kind, multiply it by your marginal rate of tax (20, 40 or 45 percent) to find out how much company car tax you’ll pay each year.
Better still, if you know the model of car you’re interested in, just click here for our company car tax calculator. All you’ll need is the exact model of the car – the calculator provides everything else.
- CO2 emissions and the P11D value of the car decide the tax you’ll pay
- Cars that emit more cost more
- Expensive cars cost more in tax – except hybrids
- If your employer pays for your private fuel, that’s taxed too
- Hybrids and electric cars can cut your tax bill
How to reduce your company car tax
The tax system favours cars that are less damaging to the environment and incentivises you and your employer to choose such cars. The other factor is basically the price.
The obvious way to reduce your tax liability is to opt for a cheap car with the lowest CO2 emissions. But that ignores what you might need (or want!) from your company car. So what else can you consider?
What about electric cars and hybrids?
If you use your company for private mileage, the only way to avoid company car tax altogether is with an electric car, though from 2015 these will be taxed too – at 5%, rising to 7%. Still, if you don’t do many miles, it may work for you.
Currently, hybrids are looking more attractive as company car tax rates rise.
The Volvo V60 diesel hybrid is big and fast, yet a 40% tax payer would pay only £404 a year in company car tax.
Switch to a regular diesel V60 and that jumps to around £2000 a year, though the hybrid is more expensive to buy.
Is it better to choose petrol or diesel?
There’s no clear answer. It depends on the mileage you cover, and the car you choose.
That’s because although diesels usually have better CO2 emissions than a similarly powerful petrol engine, they attract a 3% surcharge (this premium goes in 2017). So, with exceptions, rates are roughly comparable for a given make and model of car. So you need to factor in fuel economy and purchase price to make an informed choice about overall running costs.
If you cover fewer than 10,000 miles a year, an economical petrol engine can be more cost efficient overall.
- What’s best for you – petrol, diesel or hybrid?
- Decide whether you want to trade car spec for extra tax
- Get advice from an accountant, company car manager or leasing account provider
- Use our company car tax calculator
If you cover more than 10,000 miles a year, then generally a diesel company car is better, as the better fuel economy balances out the higher P11D cost and the 3% company car tax diesel surcharge.
Each individual case is different – so do the maths for your own situation.
What if I only use the car for business?
Then you don’t have to pay any CCT, but the car must be left at your place of work, and a log should be kept of every journey.
Fleet Alliance and company car finance
Fleet Alliance is a leading UK fleet management provider offering contract hire, leasing and a complete range of fleet solutions products, from personal contract hire through to small fleet contract hire.
Why are we associated with this factsheet?
Because we’re a market leader in the provision of car finance to the SME market as well as larger corporate fleets.
Fleet 360 is delivered via e-fleet, our cloud-based fleet management and reporting system.
Coupled with our strong people-based customer service ethos, e-fleet provides a complete outsourced fleet management solution.
We currently manage over 10,500 vehicles with a combined value in excess of £200m.
We deliver a complete fleet solution via our market leading Fleet 360 model which provides the best combination of advice, products, competitive pricing and outstanding service.
So whether you’re interested in a personal lease or a contract hire, we can find a competitively priced car for you.
You can look us up at our website where you’ll also find industry news, white papers to help you make more informed decisions and, if you’re interested, our blog which takes a light hearted look at serious fleet issues.
While you’re there, why not try out company car tax calculator.
So if you’re looking for finance or fleet advice, call us on 0845 601 8407.