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4x4 Company Car Tax

Company Car Tax Rules for Vans and 4x4s - Simple explanations of what company car tax is based on and how does HMRC company car tax deduction work for your 4WD pickup truck or a double cab.

Understanding how your 4x4 company car tax rates and calculations work can be a little confusing but you should find this simplified guide a fairly smooth ride as we try to unravel the complexities of the BIK system.

Company Car Tax Explained

In a nutshell, the overwhelming majority of 4-wheel drive cars and vans benefit charges in the United Kingdom are based broadly around the CO2 emission figures (discharge from burning oil or gas) - but there are other important factors to consider.

A vehicle becomes a taxable perk of the job if it is supplied to you in connection with your employment and you use it for private transportation. That also includes the car fuel benefit made available for any personal or recreational trips that you happen to take in your commercial, light van, 4x4 pickup, and even your off-road double cab.

Benefit in Kind Tax (BIK)

The official terminology for using this actual monetary value is 'Benefit In Kind' (abbreviated to BIK). When the cost of your BIK privilege is paid on top of your salary by your employer, HM Revenue and Customs consider the same 'Benefit in Kind' as earned income, and hence it then becomes liable for tax.

We should emphasize that company car tax bands are different than standard Vehicle Excise Duty (VED) car tax bands. In fact, HMRC currently make vehicle emissions calculations for BIK company car tax bands from over thirty different levels.

As a rule, BIK values are reduced if you only use the vehicle part-time or in circumstances where you have paid towards the cost of the original purchase. All other things being equal, this should also reduce your company car tax charges too.

We agree that driving company cars is a perk of the job, but the gratuity appears to go downhill a little too fast when a chunk of money is deducted from your regular salary. The HMRC company car tax calculator is the simplest way to calculate how much tax you need to pay.

How are Company Car Tax Rates Calculated?

How are Company Car Tax Rates Calculated?When you are working out the tax rate for your van or 4x4 vehicle, the deductions are no longer simply based on the basic carbon dioxide (CO2) tailpipe emissions such as with Vehicle Excise Duty (VED) car tax.

Since company car tax rules were updated in 2002, there are different percentages of P11D values that affect the calculations and according to different emission level bands.

P11D simply refers to the name of the form your employer sends to the tax office in connection to the company PAYE scheme.

The vehicle's general list price (including how you paid for it), its official emission figure and the type of fuel it uses, combined with certain optional extra accessories, now contribute towards the restructuring of company cars for tax purposes.

Company Car Tax Calculator

Official HM Revenue and Customs company car tax rules produce a CO2 emissions figure for each model. The measurement is determined in grams per kilometer (g/km) and then it is converted to a percentage multiplier. Taxable benefit charge for the year is calculated further by applying the vehicle list price and a several other factors to the equation.

The method of calculating a vehicle's company car tax band through its emissions assessment is not quite an exact science. Basically, driving one of the least polluting four-wheel drive models earns you a BIK rate of 5%, such as the fabulous Fiat Panda 4x4 0.9 TwinAir or the scintillating Suzuki Swift 4x4 1.2 Dualjet SZ4.

Electric Vehicles with Ultra-low EmissionsWe have also seen the introduction of lower thresholds from time to time in an effort to accelerate the take up of fuel efficient vehicles.

In fact, percentage multipliers below 15% are now applicable for specific groups of less pollutant vehicles sitting in low tax bands such as hybrid cars.

Even though the highest polluters are taxed at 35%, the Jeep Compass and the Vauxhall Antara are among the biggest culprits, the actual rate also changes with the tax year.

Electric vehicles - also called EV - use electric motors for propulsion, as a rule. Electric drive vehicles are recognized as cars with ultra-low emissions, and in fact they were once exempt from company car tax. But as a result of changes introduced in 2016, most EVs are now facing a 'Benefit in Kind' rate of 7 - 10%.

How Much Company Car Tax Will You Pay?

As with most benefits and taxes in life, your annual salary affects the actual amount of company car tax you will pay. What that actually means is when you earn more than £10,600 a year you fall into the 20% income tax bracket, the tax due will be the same percentage (20%) of the taxable portion relating to the vehicle's P11D value.

Likewise, if your income exceeds £42,385 a month you will pay 40% on the taxable part of the P11D because you rank in the 40% tax bracket. In most cases, company car tax deduction is taken off your monthly salary and there is no longer a maximum price cap of £80,000.

This is a three step example how to calculate your tax as a company car driver;

  1. Determine the HMRC P11D value of your company car (for example £12,000)
  2. Ascertain your BIK amount by multiplying the P11D value and the tax rate dependent on CO2 emissions (e.g. 12,000 x 15% = 1,800)
  3. Multiply the BIK value by your personal tax rate (e.g. 1,800 x 40% = 720)

This example produces a company car tax payable amount of £720 per year.

Company Car Tax Petrol or Diesel

The company car running costs of a 4x4 diesel versus petrol SUV are made worse by the fact that most diesels have a three per cent surcharge over comparable petrol ranges. They may record similar carbon emissions but in general diesels emit larger quantities of harmful particulates into the environment.

When you also consider that the cost of a diesel car is likely to be higher than its petrol sibling, it may be wise to work out whether you anticipate covering enough road miles each year to warrant the extra cost of running a diesel company car.

Private Ownership and Self-employed

Privately owning a car, or self-employed ownership of a vehicle, is not liable for company car tax as such and the 'Benefits in Kind' regulations do not apply. Nevertheless, being self-employed and owning a vehicle which is registered through your business has its own set of rules and tax calculations to deal with.

Grey Fleet Vehicle Purchases

The term 'grey fleet' refers to vehicles which are used in business travel but do not belong to the actual company. Examples of grey fleet purchases would be a privately owned by employee, a rented vehicle, or maybe one which has been purchased through an employee ownership scheme.

Note: The government statement issued in 2015 reversed an earlier ruling and announced that it is retaining the current diesel supplement in company car tax until the year 2021. At that time EU-wide testing procedures should ensure that new diesel cars meet stricter worldwide air quality standards. The Finance Bill 2016 effectively allows the appropriate percentage for diesel cars to continue including the diesel supplement until that time.