How does company car tax actually work?
When you take a vehicle from your employer, this is a great option in that you can have a vehicle to use, have the maintenance covered, insurance provided and you can even have all fuel costs included. However, what employees need to be aware of is that using a company car is not FREE; this is not something you can have the benefit of without a cost implication to you. As this is a company benefit, you will have to pay tax according to the benefit in kind (BiK).
Notwithstanding the taxation benefits to the company, a taxation situation arises for the individual driver. The way that you work out how much tax is payable on the company car depends on three things:
· The P11d – this is the list price of the vehicle INCLUDING any extra features and specification and VAT. However, this EXCLUDES the first registration fee and the road fund licence/VED;
· The CO2 – every vehicle will emit an amount of CO2 emissions. This is measured in grams per kilometre. The more polluting a vehicle is, the higher the BiK tax band will be. For example, in 2018-19 a car with zero emissions has a BiK rate of 13% whereas one with 180g/km or more has a 37% BiK rate;
· Your tax band – every employee has a tax band which is set by virtue of their annual salary for example 20%, 40% or 45%. This higher the earner, the higher the tax band.
For an employee who is looking at a new business vehicle make sure you check the tax payable on the vehicle first. Do not base your decision solely upon the monthly rental or the aesthetics of a vehicle. There are free company tax calculators available to you, for example the one below from “comcar”:
As many drivers will have seen there are new testing standards coming into action to cover any cars registered on or after 1 September 2018. The Worldwide Harmonised Light Vehicle Test Procedure (WLTP) are new laboratory tests which measure the fuel consumption and emissions on a vehicle. The new testing is aimed to emulate more realistic driving behaviour, a greater range of situations (urban, motorways, suburban), longer test distances, shorter stops, higher speeds and more realistic temperatures. For company car drivers, this may change the type of vehicle/vehicles they are looking at.
In addition, where fuel is provided to the employee for both business and personal use, a taxable benefit of £23,400.00 will apply (for 2018-19 tax year). There is no such thing as free fuel!
To summarise, unless you have a car part-time, you contribute to the cost, you pay for your own fuel or the car has low CO2 emissions, there could be a sizeable tax bill for you. Therefore, make sure you accurately calculate your company car tax well in advance of selecting your next lease car.
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