Company Car Tax Explained

Everything you need to know about road tax for company cars
Company Car Tax Explained

Anyone earning over £8,500 a year and 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?


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 it’s carbon dioxide emissions (C02). The higher each of them are, the higher the tax you pay!


How can you 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.

So, the obvious way to reduce your tax liability is to opt for a cheap car with the lowest C02 emissions and the lowest list price, but that could end up meaning you ignore what you actually need (or want!). A hybrid/fully electric car might be worth considering after all…


What if I only use the car for business?

If you use the car just for business use, then you do not have to pay company car tax. However, that really does mean no personal use at all - you can’t even pop to the Tesco to do your weekly shop on the way home from work!

To make sure the HMRC know the vehicle is only used for business, you must keep a clear log of every journey, recording the mileage before and after.


How is company car tax calculated?

Company car tax treats the car as a ‘Benefit in Kind’ (BIK). 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 C02 emissions.

So: BIK = P11D value x C02 emissions based percentage

But where do you get these numbers, and what’s the P11D value? P11D is the recommended retail price (including VAT and delivery) of the car, plus any little optional extras over £100 that you decide to add, such as satnav, upgraded audio system, or even metallic paint. VED and first registration free aren’t included.

The C02 percentage will be in the car’s literature and marketing material. It’s expressed in grams per kilometre (g/km).

Calculate your car tax here: www.gov.uk/calculate-tax-on-company-cars

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