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Company Car Tax Explained
Tax on company cars comes from a benefit-in-kind monetary value calculation that employees need to pay if they get benefits (a taxable perk) over and above their regular salary.
This HMRC help section explains the general rules for company car tax and how much tax you pay on commercial vehicles, including vans and pickups.
How is Company Car Tax Calculated (BIK)
Understanding how HMRC company car tax rates and calculations work can be a little confusing.
But, you should find this simplified guide a fairly smooth ride. We also try to unravel the complexities of the BIK system.
In a nutshell, having a company car for private use means you need to pay a benefit in kind (BIK) contribution to HMRC.
The same company car tax rules also apply when commuting, and if a family member uses the vehicle 'privately'.
Furthermore, the BIK percentage banding applies to all company cars, no matter whether it's a car derived van, a 4x4 pickup, or an off-road double cab.
The amount of tax that employees need to pay is based on their personal income tax rate, the P11D value of the "privately" used vehicle, and its carbon dioxide emissions (CO2).
What is a P11D Value of a Car?
Simply put, a vehicle's P11D value is the list price plus any extra charges for delivery and factory options, such as chargeable trimmings and paint, and VAT. The figure does not factor in any discounts, annual road tax, or the first registration fees.
Thus, there is some value in being able to drive a company car for private use. The tax paid on this figure depends on several factors, especially what type of fuel it uses.
But, there are ways to reduce the value of the car benefit charge, such as if you're only using the vehicle on a part time basis, or:
- The company-provided vehicle has very low carbon dioxide emissions.
- You are contributing towards the cost of a vehicle that your employer provides for your personal use.
Important: Is your employer paying for the fuel that you are using for personal journeys? If so, you will be taxed on the car fuel benefit separately by your employer.
What if Your Car is a Hybrid?
The value of company cars that produce between one (1) and fifty (50) g/km C02 emissions (e.g. hybrid cars) is based on the electric range (e.g. zero emission mileage figure).
The electric range is the distance that electric vehicles (EVs) can travel on electric power before the batteries need to be recharged.
How to Calculate BIK Company Car Tax?
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).
HM Revenue and Customs considers non-cash benefits and salary sacrifice schemes as earned income. So, these perks will be liable for taxation in the United Kingdom.
As part of company PAYE schemes, your employer will send a P11D form to the tax office. HMRC currently makes emissions calculations for BIK car tax bands from a table with more than thirty different levels.
Follow these simple steps to calculate how much tax you need to pay on a company car (BIK rate for taxation):
- Find out the P11D value for your vehicle and multiply the figure by the BIK percentage banding.
- Next, multiply that figure by your personal income tax band (e.g. 20%, 40%, or 45%).
- This calculation produces your annual amount. Thus, divide the total by twelve (12) to get your monthly outgoing for BIK company car tax.
Pro Tip: HMRC's car benefit calculator is the simplest way to calculate how much tax you need to pay. Company car tax bands differ to the standard flat rate of road tax for vans and pickups (VED).
Company Car Tax Calculator for EVs
The official HM Revenue and Customs company car tax rules produce a CO2 emissions figure for each model. It is a measurement determined in grams per kilometre (g/km) and converted to a percentage multiplier.
Taxable benefit charge for the year is calculated even further. HMRC applies the vehicle list price and several other key factors to the equation.
But, this method of calculating a vehicle's company car tax band through its emissions assessment is not quite an exact science.
For example:
Based on a P11D price of £7,640, and a monthly BIK tax of £2.60 (20%), the Citroen Ami Pop has the cheapest company car tax rate in the United Kingdom.
Other examples include the fabulous Fiat Panda 4x4 0.9 TwinAir and the scintillating Suzuki Swift 4x4 1.2 Dualjet SZ4.
We have also seen the introduction of lower thresholds from time to time. This is the government's effort to speed up the uptake of fuel efficient vehicles.
In fact, percentage multipliers below 15% are now applicable for specific groups of less polluting vehicles. They sit in very low tax bands (e.g. hybrid cars).
The highest polluters get taxed at 35%. The Jeep Compass and the Vauxhall Antara are among the biggest culprits. But, the actual rate also changes with the tax year.
Most EVs (electric vehicles) use electric motors for propulsion. Thus, electric drive vehicles are recognised as cars with ultra-low emissions.
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%.
Company Car Tax Petrol or Diesel
The company car running costs of a 4x4 diesel versus petrol SUV worsen. Most diesels have a 3% surcharge over comparable petrol ranges.
Here's the thing:
They may record similar carbon emissions. But, in general, diesel-powered vehicles tend to emit larger quantities of harmful particulates into the environment.
The cost of a diesel car is likely to be higher than its petrol sibling. Thus, 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
HMRC benefits-in-kind (BIK) and company car tax rules do not apply on privately owned cars or on self-employed ownership of a vehicle.
But, being self-employed while owning a vehicle 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 used in business travel, but do not belong to the actual company. Examples of grey fleet purchases would be one privately owned by an employee, a rented vehicle, or one purchased through an employee ownership scheme.
Important: The government statement issued in 2015 reversed an earlier ruling. It announced the retention of 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.
BIK on Company Vans
Unless a van qualifies as exempt, employers need to report the standard value of vans used for private journeys to HM revenue and Customs.
In other words, there is no need to report vans which are "only" used for business journeys, as a pool van, or as part of a salary sacrifice arrangement.
Double Cab Pick Up Tax Changes 2024
According to HMRC (EIM23151), the interpretation of the legislation that defines double cab pickup trucks for the benefit charge will change from the 1st of July 2024.
As a consequence, HM Revenue and Customs will classify almost all double cab pickups as cars when calculating liability for company car tax.
The rationale behind the change in law is that carrying goods in these vehicles has no predominant suitability. So, they have equal suitability to convey passengers.