Company car tax

But, a company car may not be the ideal perk you first thought it was - there's a lot more to consider than just the paint job. Company vehicles can have some tax implications and depending on the type of car you choose these can be less attractive.   

It can be confusing to understand and calculate but this comprehensive guide can help you understand the amount of tax you should be paying, to help you decide which is the most affordable company car to choose.

When is a vehicle a company car?

A company car is a vehicle that was given to you by your employer as a company benefit - on top of your annual salary.

It should be a vehicle that you are free to use in your personal time, as well as within working hours if required. Even if the only personal use of the vehicle is commuting, HMRC concludes this to be a perk and results in you paying tax.

How much tax will I pay on my company car?

The amount of tax you’ll pay on your company car will depend on variable factors.

These factors include  much you earn annually, the CO2 emission bracket of the vehicle and the P11D value of the vehicle.   

If the vehicle runs on diesel, you’ll incur a 4% surcharge as of 2018 but if your car requires petrol fuel or runs on electric, the extra charge is waived.   

Your vehicle will fall into a CO2 emission band which has been carefully designed to align with the Worldwide Harmonised Light Vehicle Test Procedure. The WLTP came into force in 2017 and overtook the theory based, New European Driving Cycle or the NEDC.   

It uses driving data to assess on-road performance and calculates the fuel efficiency to see how much CO2 is emitted. 

As of 2019, all car dealerships will have WLTP-COZ values and all taxable incentives will follow suit.   

Here are the company car tax bands:

* Cars that meet the standard Real Driving Emissions Step 2 (RDE2) are exempt from 4% diesel surcharge.

How to calculate company car tax

To work out how much company car tax you’ll need to pay, HMRC will first consider how much CO2 your car emits. This will fall into one of 18 emission bands above.   

The lowest band starts with vehicles that emit 0-50g/km. The amount you’ll pay will appear as a percentage and you’ll notice that the diesel percentages are slightly higher than petrol as there’s an added 4% surcharge for diesel motors.   

This percentage will be multiplied by the recommended retail price, RRP of the vehicle, which is often referred to as the P11D amount or value which is calculated using a make-up of certain costs associated with the vehicle. You can see how to calculate your P11D value here.  

HMRC also offers a comprehensive calculator that you can use to help you work out how much tax you need to pay.

Company car tax calculator

The amount of company car tax you’ll pay can be calculated with a simple sum. The P11D value multiplied with the CO2 emission bracket is called the Benefit-in-kind value, often abbreviated to BIK.   

The BIK value is then multiplied again by the income tax bracket you fall into (20%, 40% or 45%). If you pay only 20% income tax, you’ll only pay 20% of the vehicle’s P11D value.