Many
companies have recognised the value of providing a company car as part of
employee benefits. This can be an appealing perk for both employers and
employees, as the vehicle can be used for personal and business purposes.
However, this benefit comes with tax obligations, which we’ll explain in this
blog.
Company Car Overview
When your
employer provides a company car, HMRC treats this as a Benefit in Kind (BiK).
This means that even if the car is only used for commuting, you will be liable
to pay tax on this benefit.
What is a Benefit-in-Kind (BiK)?
A
Benefit-in-Kind refers to non-cash perks provided by your employer, such as the
use of a company car, which are subject to tax in addition to your salary.
Factors Affecting the Tax You Pay
The tax
owed for a company car depends on several factors:
- The list price of the car as
stated by the manufacturer (P11D value).
- Your annual income.
- The type of fuel used by the
car and its carbon dioxide (CO2) emissions.
Diesel
vehicles are subject to a 4% surcharge, whereas petrol and electric vehicles do
not attract this extra charge.
Company Car Tax Bands for 2024/25
The tax
payable on your company car is determined by its “company car tax
band,” which is based on the vehicle’s CO2 emissions. Below is a table
outlining the BiK tax bands for non-electric cars for the 2024/25 tax year.
Non-electric cars tax rates for
2024/25
|
CO2 emissions (g/km) |
Electric range (miles) |
NEDC* % |
WLTP** % |
|
0 |
– |
2% |
2% |
|
1-50 |
130+ |
2% |
2% |
|
1-50 |
70-129 |
5% |
5% |
|
1-50 |
40-69 |
8% |
8% |
|
1-50 |
30-39 |
12% |
12% |
|
1-50 |
<30 |
14% |
14% |
|
51-54 |
– |
15% |
15% |
|
55-59 |
– |
16% |
16% |
|
60-64 |
– |
17% |
17% |
|
65-69 |
– |
18% |
18% |
|
70-74 |
– |
19% |
19% |
|
75-79 |
– |
20% |
20% |
|
80-84 |
– |
21% |
21% |
|
85-89 |
– |
22% |
22% |
|
90-94 |
– |
23% |
23% |
|
95-99 |
– |
24% |
24% |
|
100-104 |
– |
25% |
25% |
|
105-109 |
– |
26% |
26% |
|
110-114 |
– |
27% |
27% |
|
115-119 |
– |
28% |
28% |
|
120-124 |
– |
29% |
29% |
|
125-129 |
– |
30% |
30% |
|
130-134 |
– |
31% |
31% |
|
135-139 |
– |
32% |
32% |
|
140-144 |
– |
33% |
33% |
|
145-149 |
– |
34% |
34% |
|
150-154 |
– |
35% |
35% |
|
155-159 |
– |
36% |
36% |
|
160-164 |
– |
37% |
37% |
|
165-169 |
– |
37% |
37% |
|
170+ |
– |
37% |
37% |
How to Calculate Company Car Tax
To calculate
the tax you owe on your company car, follow these steps:
- Find the car’s P11D value,
which includes the list price, delivery fees, and the first year’s road
tax.
- Multiply the P11D value by
the appropriate BiK rate based on the car’s CO2 emissions.
- Apply your income tax rate
to the result.
Example of Company Car Tax
Calculation
Let’s say
you drive a Mercedes C-Class with a P11D value of £40,000 and CO2
emissions of 147g/km. Based on the table, the BiK rate for this car in
the 2024/25 tax year would be 34%. The taxable amount is:
£40,000 x
34% = £13,600
If you
fall into the higher income tax bracket of 40%, your tax liability would be:
£13,600 x
40% = £5,440
If you’re
still uncertain, you can use HMRC’s online calculator to work out the exact tax
payable for your specific company car.
Reducing Your Tax Liability
The
government is actively promoting the use of electric vehicles by offering lower
tax rates compared to petrol and diesel cars. Below is a table that shows
potential tax savings for different types of vehicles:
|
Car Model |
CO2 Emissions |
Electric Range |
Approx. List Price |
Tax Rate |
Diesel Surcharge |
Total Tax |
Taxable Amount |
|
Tesla Model 3 (Electric) |
0g/km |
– |
£55,000 |
2% |
– |
2% |
£1,100 |
|
Volvo XC90 (Hybrid) |
50g/km |
35 miles |
£65,000 |
12% |
– |
12% |
£7,800 |
|
Audi A6 (Petrol) |
165g/km |
N/A |
£60,000 |
37% |
– |
37% |
£22,200 |
|
Jaguar XF (Diesel) |
128g/km |
N/A |
£50,000 |
30% |
4% |
34% |
£17,000 |
As
demonstrated, opting for an electric vehicle such as the Tesla Model 3
can lead to significantly lower tax compared to hybrid, petrol, or diesel
options.
Conclusion
When
choosing between an electric, hybrid, petrol, or diesel vehicle, it’s essential
to consider the tax implications. Your income tax bracket also affects the overall
tax payable on your company car, so it’s important to calculate potential costs
in advance.
At Accovis
LLP, we are experts in tax advisory and can help you understand the tax
implications of your company car, enabling you to make informed financial
decisions.
