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> Company Car Tax Explained
Company car tax is the income tax paid by an employee when a company car is available for private use.
The taxable value is normally based on the car's P11D value, CO2 emissions, fuel type and electric range where relevant. The employee then pays tax on the calculated Benefit-in-Kind (BIK).
This page explains the main terms used in company car taxation, including P11D value, Benefit-in-Kind, taxable percentage, fuel benefit and employer National Insurance.
What Is Company Car Tax?
Company car tax is the income tax charged on the taxable benefit of having a company car available for private use.
If an employer provides a car and the employee can use it privately, HMRC treats that private use as a taxable benefit. The taxable benefit is normally reported through payroll or on a P11D form.
The tax is not based directly on the cost of the lease or finance agreement. Instead, it is normally based on the car's taxable value and the percentage set by the company car benefit rules.
What Is Benefit-in-Kind (BIK)?
Benefit-in-Kind, often shortened to BIK, is the taxable value of a benefit provided by an employer.
For company cars, the BIK figure is the annual taxable benefit calculated from the car's P11D value and the relevant company car tax percentage.
The employee then pays income tax on the BIK figure according to their tax position. This is why two employees with the same company car can have different tax bills if they pay tax at different rates.
What Is A P11D Value?
The P11D value is the taxable value of the company car used in the Benefit-in-Kind calculation.
It is normally based on the manufacturer's list price, plus delivery charges and certain accessories. It does not usually follow the discounted price actually paid by the employer or leasing company.
Factory options and accessories can increase the P11D value. This means that two cars with the same engine and emissions may create different taxable benefits if one has additional factory options.
How Company Car Tax Is Calculated
The basic company car tax calculation follows three stages:
- Calculate the car's P11D value.
- Apply the relevant taxable percentage to calculate the annual Benefit-in-Kind.
- Apply the employee's income tax rate to calculate the tax due.
For example, if a company car has a P11D value of £40,000 and the taxable percentage is 25%, the annual company car benefit is £10,000.
If the employee pays income tax at 20%, the annual company car tax would be £2,000. If the employee pays tax at 40%, the annual company car tax would be £4,000.
Important: The actual tax position may depend on personal circumstances, payroll treatment and the relevant tax year. DriveSmart provides factual vehicle and tax calculations, but does not provide personal tax advice.
Company Car Tax And CO2 Emissions
For most modern company cars, the taxable percentage is linked to CO2 emissions. Cars with lower CO2 emissions usually have a lower taxable percentage than higher-emission cars.
Fully electric cars have zero tailpipe CO2 emissions and are therefore usually taxed at a lower company car percentage than petrol, diesel or hybrid cars.
Plug-in hybrid cars are treated differently from conventional petrol and diesel cars because their electric-only range can affect the taxable percentage.
Electric Company Car Tax
Electric company cars can still create a taxable company car benefit. However, the taxable percentage is usually lower because electric cars produce no CO2 from the exhaust while being driven.
This has made electric cars important in company car planning, especially where employees are comparing Benefit-in-Kind costs.
The company car tax position for electric cars can change between tax years, so calculations should be checked using the relevant tax year.
Hybrid Company Car Tax
Hybrid company cars can have different company car tax outcomes depending on their CO2 emissions and, for plug-in hybrids, the electric-only range.
Plug-in hybrids with longer electric-only range may have a lower taxable percentage than otherwise similar cars with shorter electric range.
Hybrid vehicle calculations should be treated carefully because CO2 testing rules and benefit-in-kind treatment can change over time.
Diesel Company Car Tax
Diesel company cars may be affected by additional company car tax rules depending on emissions standards.
The diesel supplement has historically increased the taxable percentage for some diesel cars, although cars meeting relevant emissions standards may be treated differently.
The DriveSmart calculator uses the vehicle and emissions data held for the selected derivative when calculating the taxable benefit.
Company Car Fuel Benefit
Company car fuel benefit can apply where an employer provides fuel for private journeys.
The fuel benefit is separate from the car benefit. It is calculated using a fixed fuel benefit multiplier and the car's company car taxable percentage.
Fuel benefit can create a significant additional tax charge, so employees should understand whether private fuel is being provided and whether it is worthwhile in their circumstances.
Employer National Insurance
Employers normally pay Class 1A National Insurance Contributions on taxable company car benefits and fuel benefits.
This means the company car decision can affect both the employee's tax position and the employer's employment cost.
The DriveSmart company car tax calculator shows employee tax and employer National Insurance so that both sides of the calculation can be reviewed.
Scottish Tax Rates And Company Cars
Company car benefit is calculated using UK company car benefit rules, but the tax paid by the employee depends on their income tax position.
Scottish taxpayers may pay income tax using Scottish tax bands and rates. This can produce a different tax charge from the rest of the UK.
The DriveSmart calculator separates Scottish tax calculations where relevant so that the results can be compared more clearly.
Capital Contributions And Private Use Contributions
A capital contribution is an amount paid by the employee towards the cost of the company car. It may reduce the taxable value used in the company car benefit calculation, subject to limits.
A private use contribution is an amount the employee is required to pay as a condition of having the company car available for private use. It may reduce the annual taxable benefit.
These points can be more detailed than a standard company car tax estimate, particularly where options and accessories are also involved.
Using The DriveSmart Company Car Tax Calculator
The DriveSmart company car tax calculator allows users to select a manufacturer, model and derivative to estimate the company car benefit and tax position for that vehicle.
The calculator shows the annual company car benefit, employee tax, fuel benefit where relevant and employer National Insurance calculations.
The calculation is based on the standard vehicle data available for the selected derivative. If the car includes factory options or accessories, the P11D value may be higher than the standard vehicle shown.
Related Company Car Tools
DriveSmart provides a range of company car, salary sacrifice and running cost tools:
Company Car Tax FAQs
What is company car tax?
Company car tax is the income tax paid on the taxable benefit of having a company car available for private use.
What does BIK mean?
BIK means Benefit-in-Kind. It is the taxable value of a non-cash benefit provided by an employer.
What is a P11D value?
The P11D value is the taxable value of the company car used when calculating the company car benefit.
Are electric company cars tax free?
Electric company cars can still create a taxable benefit, but they normally have a lower taxable percentage than many petrol, diesel or hybrid cars.
Does fuel benefit apply to electric cars?
Private fuel benefit normally relates to employer-provided fuel for private journeys. Electric company cars are treated differently because electricity is not taxed in the same way as petrol or diesel fuel benefit.