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”:

https://comcar.co.uk/newcar/companycar/taxcalc

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.

Learn more about the benefits of car leasing for tax purposes and other general car leasing help and advice in our help and advice pages, you can also read new lease car reviews and news in our blog.