Capital Contributions

If you contribute towards the purchase price of your company car (the 'capital cost') then your 'capital contribution' can reduce your annual taxable benefit.

Each £1 that you contribute towards the cost of your company car reduces the taxable List Price.

For example, if your car costs £40,000 and you contribute £1,000 towards the capital cost then the List Price is reduced by £1,000 to £39,000 when calculating your taxable benefit.

There is a limit to the amount of your capital contributions that will qualify for reducing the List Price for tax purposes.

Currently the maximum is set at £5,000, so if you contribute £6,000 then only the first £5,000 will qualify for reducing the taxable List Price of your company car.

Private Use Contributions

If you are required to make a financial contribution as a condition of your company car being available to you for private motoring, your contribution will normally reduce the annual taxable benefit of the car.

Each £1 that you pay during the tax year as a private use contribution reduces your annual taxable benefit by £1.

For example, let’s assume you pay £50 per month as a private use contribution (i.e. £600pa).

If your car's List Price is £40,000 and the CO2 derived taxable percentage is 20, the standard annual taxable benefit of your car would be £8,000pa (£40,000 x 20%).

The £8,000pa benefit is then reduced for the £600pa private use contribution, which makes the annual company car benefit £7,400pa.

The maximum tax-deductible private use contribution you can make in any tax year is equal to the taxable benefit of your company car.

For example, if your annual taxable benefit is £4,000 then the maximum private use contributions for which you can obtain a tax deduction is £4,000.

A negative taxable benefit (and therefore a tax refund) cannot be created by making a private use contribution greater than the annual benefit of your car.

'Top-Up' Contributions

If you contribute towards the costs of obtaining a company car of a higher specification than your normal entitlement then your “top-up” contribution is only allowed as a deduction from your taxable benefit if it is a condition of the car being available to you for private use.

If the “top-up” contribution is simply a condition of the higher specification car being provided to you then the contribution is not normally tax deductible.

It is therefore usually advisable to have your employer write to you specifying that any private use contribution is required as a condition of the car being made available to you for private use, particularly if the contribution includes a “top-up” for a higher specification car being provided.

Availability

If your company car is unavailable to you for 30 consecutive days or more (perhaps for repairs) your car benefit (and your fuel benefit if appropriate) is reduced to take account of this.

During a tax year, periods before your company car first becomes available for your private use and periods after your car stops being available are ignored for taxable benefit purposes.

In addition, if your car becomes temporarily unavailable for 30 or more days then your taxable benefit is reduced by the number of days involved.

For example, let’s assume that your car has a taxable List Price of £40,000, a taxable percentage of 20% of List Price applies and your car is unavailable due to repairs for 31 days during the tax year.

Your annual taxable benefit for the year would be:

• Manufacturer’s List Price £40,000 x 20% = £8,000
• Availability Adjustment: £8,000/365 x 31 = £679
• Availability Adjusted Taxable Benefit = £7,321 (£8,000 - £679).

Company Car CO2 Output

Once the taxable List Price of a company car has been determined the next stage of calculating the company car benefit uses the engine's CO2 output.

By using CO2 output as a factor in calcuating company car benefit a degree of adjustment for the effect of internal combustion engine pollution and (in particular) global warming caused by company cars is introduced into the benefit.

The aim is to encourage company car drivers to choose cars with lower levels of CO2 output, though other pollutants produced by cars such as oxides of nitrogen and hydrocarbons are not currently included in the calculation.

What is the CO2 output of a company car?

CO2 output of a company car is determined by the amount of CO2 that a car emits from its exhaust, measured in Grammes Per Kilometre travelled (GPK/m).

The official CO2 output for a company car is published by the Vehicle Certification Agency (“VCA”), an agency of the Department for Transport.

Published CO2 ratings are generally only available for cars that have been sold since 1 January 1998.

Effect of CO2 output on company car benefit

A company car's annual taxable benefit is determined by multiplying the car's List Price by a percentage determined according to its CO2 output.

The percentage is taken from a table which varies between tax years and assumes the car was first registered from 6 April 2020.

To calculate the annual taxable benefit of a company car:

1. Go to the table for the date of first registration of the vehicle.
2. Look up the CO2 output of the car^* in the 1st column of the table (e.g. for 63GP/Km look at the row 60-64).
3. Read across the table to find the taxable percentage of List Price of the car according to the CO2 output.
4. If your car has a diesel engine, add a 4% surcharge to the table figure (up to a maximum of 37% including the surcharge) unless the car's engine meets the RDE2 standard for emissions.
5. Multiply your car’s List Price by the percentage found.

^*Electric cars have a CO2 output of zero

For example, in the 2024/25 tax year assume;

• your car was registered after 6 April 2020
• your car uses petrol and has a list price of £30,000;
• its CO2 output is 100GP/Km;

look down the 1st column of the 1st table to find 100-104, then across to the fifth column (2024-25) to find the percentage (25%), then multiply £30,000 by 25% = £7,500 annual company car taxable benefit.

If your car’s CO2 output exceeds the maximum figure in the 1st column, use the maximum.