What is Company Car Tax?
Company car tax is payable if you are given a company vehicle by your employer and it is classed by HMRC as a company benefit or BIK (benefit in kind).
Understanding the amount of tax you will pay if you are a given a company car benefit is important.
Not all cars attract the same car tax deduction which means checking before choosing your car is recommended to make sure you are comfortable with the effects it will have on your tax position.
What is classed as a company car?
HMRC classes a company car as a vehicle that is given to you by your employer that is used for work and some personal use. Personal use of a company car includes normal commuting to and from work and if family members use the car.
Company car tax calculator
To calculate the company car tax for your car you will need the following figures:
- The P11D value of your car.
- The BIK rate of your car.
- The income tax bracket your pay falls into.
The company car tax calculation used is:
P11D car value x BIK rate x your income tax band = Company car tax payable
You can use the free HMRC company car and fuel benefit calculator to help you estimate how much tax you will pay with a particular car.
What is a company car P11D?
A P11D is a form given to you by employer which details your company car benefit. The P11D will be produced by your employer after each tax year ends on the 5 April and shows the value of your company car benefit.
You calculate the P11D value of a car by using the price of a vehicle including the VAT paid and delivery charges and deducting the first years registration fee and car tax.
It is recommended that you check the company car figure(s) on your P11D to make sure it is correct.
Your P11D will also include any other company benefits like a health/medical scheme, accommodation costs or a company loan.
What are the BIK rates for a company car?
BIK stands for benefit in kind and HMRC apply a BIK rate as a percentage to company cars.
The BIK rate is based on a vehicles level of CO2 emissions and is designed to show how environmentally friendly a car is.
BIK rates are applied to all cars including electric vehicles with low emission options having the lowest BIK rate.
You are essentially rewarded for choosing a lower emissions vehicle by paying less income tax in comparison to a car with a higher CO2 rating.
HMRC uses the BIK rate percentage to help calculate the company car BIK value along with the P11D value.
Company Car BIK rates:
CO2 emissions (grams per km) Electric mileage range NEDC % WLTP %
0 — 2 2
1 to 50 130 and above 2 2
1 to 50 70 to 129 5 5
1 to 50 40 to 69 8 8
1 to 50 30 to 39 12 12
1 to 50 less than 30 14 14
51 to 54 — 15 15
55 to 59 — 16 16
60 to 64 — 17 17
65 to 69 — 18 18
70 to 74 — 19 19
75 to 79 — 20 20
80 to 84 — 21 21
85 to 89 — 22 22
90 to 94 — 23 23
95 to 99 — 24 24
100 to 104 — 25 25
105 to 109 — 26 26
110 to 114 — 27 27
115 to 119 — 28 28
120 to 124 — 29 29
125 to 129 — 30 30
130 to 134 — 31 31
135 to 139 — 32 32
140 to 144 — 33 33
145 to 149 — 34 34
150 to 154 — 35 35
155 to 159 — 36 36
160 to 164 — 37 37
165 to 169 — 37 37
170 and above — 37 37
NEDC stands for New European Driving Cycle and WLTP stands for Worldwide Harmonised Light Vehicle Test Procedure.
The UK government uses information provided by the NEDC and WLTP to help produce the company car BIK rates.
What is the BIK value of a company car value?
The benefit in kind value (BIK value) is used as part of the company car tax calculation.
You calculate a cars BIK value by using the P11D value and multiplying it by the BIK rate.
Income tax rates to calculate company car tax
The rate at which you pay income tax is used as part of the company car calculation. There are four income tax rates which increase in value as you earn more.
You receive a tax free personal allowance each tax year and then pay income tax at a rate of 20%, 40% or 45%. Depending on the level of your income you may pay tax at more than one rate of tax.
If you are unsure at which rate you pay tax you can check your personal tax account or use the HMRC app.
Company car fuel benefit
Company car fuel benefit is applicable if your employer gives you a company car and let’s you use the car for personal use without you having to pay for the cost of the fuel.
Basically HMRC classes the fuel paid for by your employer that is used for personal travel (which includes normal commuting) as free fuel and needs to tax it as a company benefit.
An employer can subsidise the fuel benefit but if it doesn’t you will be taxed according to the fuel charge multiplier, BIK and income tax rates.
The company car fuel benefit calculation is as follows:
BIK rate % x the fuel benefit charge multiplier x your income tax bracket %
The benefit in kind value is worked out by multiplying the BIK rate percentage by the fuel benefit charge multiplier by the rate at which you pay tax.
The fuel benefit charge multiplier is a figure generated by HMRC which can change in each tax year.
It may work out more expensive to use company fuel for private use with the number of private miles being driven effecting the value of this option.
Company car tax code
HMRC uses your company car benefit value and adds it on to your total income figure so it is taxed at the same time as your salary.
Because a company car is classed as a benefit your tax code will be reduced to allow for additional income tax to be deducted from your pay.
HMRC adjusts your tax code to include you car benefit and any other company benefits. Your tax code is then given to your employer by HMRC and this tells your employer the correct amount of income tax to deduct from your salary.
It is common to receive a K tax code which means your tax free personal allowance is reduced to nil because of your company car benefit.
NOTE:
A company car benefit increases your total income figure which means some of your salary may fall into a higher tax bracket because of it.
This scenario needs to be to be considered when making a decision on your company car because it could result in you paying more tax than you initially thought.
Checking your company car tax is correct
Checking your company car details are up to date is a valuable exercise. HMRC need to be told about changes to enable them to give your employer the correct tax code so the right amount of tax is paid.
For example if you change company car and the value is different HMRC needs to be told to allow for the appropriate adjustments to your code.
Having an incorrect company car tax code will mean you will either overpay or underpay income so helping HMRC get it right is recommended.
You can check and update your company car tax online by using the HMRC company car tax tool.
Can I pay less company car tax?
Company car tax can be reduced however you may need to compromise on the type of car you choose.
Three ways to pay less company car tax are to select a car with:
- A lower P11D value (list price).
- Lower CO2 emissions. A different fuel type other than the traditional petrol or diesel is worth considering. Electric and Hybrid vehicles provide a more environmentally sensitive choice but may not be as cost-effective to buy initially.
- Your company car tax bill is also reduced if you pay some of the initial car cost or have limited access to the car for example on a part time basis.
Company car VED tax
One final company car tax cost to consider is the vehicle excise duty. The government are exempting electric cars from VED tax up to April 2025.
From April 2025 all electric cars will be charged a standard VED tax of £165 per year and cars with a list price of £40,000 or more will have an extra premium car tax rate to pay of £355 per year.
The premium car tax rate of £355 is payable from the second year and for five years only.
