What Is Company Car Tax?

A company car is a car that has been provided to an employee by their employer that they can drive for their own personal use outside of work (including commuting). Officially, a company car is known as a Benefit in Kind (BiK) - an added bonus on top of your annual salary.

Her Majesty's Revenue and Customs (HMRC) consider a company car to be a taxable perk, so if you drive one, you will be subject to company car tax, also known as Benefit in Kind tax.

How Is Company Car Tax Calculated?

The amount of BiK tax you pay depends on five elements:

  1. The CO2 emissions per kilometre of your chosen car
  2. The value of the car when new - including any optional extras (P11D value)
  3. Whether you're a Basic, Higher or Additional Rate tax payer (the cash value of the car is added to your annual salary)
  4. Whether you make any personal contributions towards it's cost
  5. Whether you have access to the car all or some of the time

CO2 EMISSIONS

In an effort to encourage businesses to choose cleaner cars for their employees, the government decided to use CO2 emissions to determine what proportion of the car's value is taxable.

The more CO2 it emits per kilometre (i.e. the dirtier it is), the more you'll have to pay in BiK tax. This has led to an increase in low-emission and alternatively fuelled vehicles being leased and sold as well as a rise in the number of diesel cars on UK roads.

Each year, HMRC revises the CO2 bands and the tax percentage so the amount of company car tax you pay is likely to increase over your lifetime ownership of the car.

Zero emission vehicles such as 100% electric cars and hydrogen fuel-cell cars were once exempt from company car tax. However, changes in the 2016/17 financial year meant all zero emission cars were charged an initial 13% BiK tax charge. This has since increased to 16% for the 2019/20 financial year.

The government has announced that it will remove company car tax rates for zero emission cars from the 2020/21 financial year to incentivise cleaner driving. Similarly, hybrids and plug-in hybrids will have reduced BiK tax rates depending on how far they can travel on electric power only.

Diesel cars that don't meet the new RDE2 (Real Driving Emissions) section of the WLTP efficiency standards (which isn't many) will be subject to a 4% BiK tax surcharge up to a maximum of 37%.

VALUE OF THE CAR (P11D VALUE)

The amount of company car tax you actually pay depends on the value of the car from new including the list price, any factory fitted options, VAT and any delivery charges. It doesn't include the car's first registration fee or its annual vehicle tax (VED).

This value is known as the P11D value because it's the name of the form completed by employers and sent to HMRC to let them know about any benefits received by their employees.

YOUR PERSONAL TAX BAND

Whether you're a Basic, Higher or Additional Rate income tax payer will effect how much BiK you need to pay. For England, Wales and Northern Ireland, the tax rates for the 2019/20 financial year are:

  • Basic Rate (20%) - up to £37,500
  • Higher Rate (40%) - from £37,501 - £150,000
  • Additional Rate (45%) - over £150,000

For Scotland, the tax rates and bands for the 2019/20 financial year are slightly different:

  • Starter Rate (19%) - up to £2,049
  • Basic Rate (20%) - from £2,050 - £12,444
  • Intermediate Rate (21%) - from £12,445 - £39,390
  • Higher Rate (40%) - from £30,931 - £150,000
  • Top Rate (46%) - over £150,000

For the latest information on income tax rates and bands, visit the HMRC website

HOW TO CALCULATE COMPANY CAR TAX - FORMULA

To calculate company car tax for any given car, you need to use the following formulae:

 

P11D Value x BiK CO2 Rate = BiK Value

Then

BiK Value x Personal Tax Band = Annual Company Car Tax

 

HOW TO CALCULATE COMPANY CAR TAX - EXAMPLES

The following examples demonstrate how the P11D value of the car, its CO2 emissions and the employee's income tax rate are used to calculate the amount of company car tax that needs to be paid. They also show how much difference a lower P11D value and lower emission car can make.

Example 1. Suzuki Vitara 1.4 Boosterjet SZ5 6-Speed Manual

  • P11D Value - £22,234
  • CO2 Emissions - 131g/km
    • 30% BiK CO2 Rate
  • Personal Tax Band - Basic (20%)

£22,234 x 30% = £6,670.20

£6,670.20 x 20% = £1,334.04 annual company car tax, or £111.17 per month

Example 2. Ford Focus 1.0T EcoBoost Zetec Edition 125PS 5-Speed Manual

  • P11D Value - £20,440
  • CO2 Emissions - 108g/km
    • 25% BiK CO2 Rate
  • Personal Tax Band - Higher (40%)

£20,440 x 25% = £5,110

£5,110 x 40% = 2,044 annual company car tax, or £170.34 per month

Example 3. Nissan Leaf e+ Tekna 62 kWh Automatic

  • P11D Value - £39,340
  • CO2 Emissions - 0g/km
    • 16% BiK CO2 Rate
  • Personal Tax Band - Basic (20%)

£39,340 x 16% = £6,294.40

£6,294.40 x 20% = £1,258.88 annual company car tax, or £104.91 per month

PERSONAL CONTRIBUTIONS

Any payments made to your employer - either monthly or a one-off contribution - for the private use of a company car will be deducted from the annual BiK tax charge.

AVAILABILITY OF THE CAR

If you don't have access to your company car for a period of 30 consecutive days or more (e.g. the car needs extensive repairs and you don't have a replacement car from the company's fleet), your BiK tax will be reduced in proportion to the amount of time you've not been able to use it.

To calculate how your BiK tax can be affected by personal contributions and the unavailability of the car, you can use HMRC's company car tax calculator.

Company Car Tax Bands

To help you work out how much company car tax you need to pay for any car during the 2019/20 financial year, we've added a table below with the information you need to work out the BiK Value.

CO2 Emissions (g/km) 2019/20 BiK Rate % - Petrol & RDE2 Diesels 2019/20 BiK Rate (%) - Non-RDE2 Diesels
0-50 16 20
51-75 19 23
76-94 22 26
95-99 23 27
100-104 24 28
105-109 25 29
110-114 26 30
115-119 27 31
120-124 28 32
125-129 29 33
130-134 30 34
135-139 31 35
140-144 32 36
145-149 33 37
150-154 34 37
155-159 35 37
160-164 36 37
165+ 37 37

2020/21 COMPANY CAR TAX BANDS

The company car tax bands for the 2020/21 financial year were revised on the 10th July 2019, having been initially released as part of the Autumn Statement in 2016.

Two new BiK tables for company car drivers have been created: one for those driving a company car registered before 6th April 2016, and one for those driving a company car registered after 6th April 2020.

A sliding scale for cars emitting 50g/km CO2 or less will come into force along with the reintroduction of a BiK band for zero emission cars.

Cars First Registered Before 6th April 2020

CO2 Emissions (g/km) Electric Range (miles) 2020/21 BiK Rate % - Petrol & RDE2 Diesels 2020/21 BiK Rate (%) - Non-RDE2 Diesels
0 N/A 0 4
1-50 >130 2 6
1-50 70-129 5 9
1-50 40-69 8 12
1-50 30-39 12 16
1-50 <30 14 18
51-54   15 19
55-59   16 20
60-64   17 21
65-69   18 22
70-74   19 23
75-79   20 24
80-84   21 25
85-89   22 26
90-94   23 27
95-99   24 28
100-104   25 29
105-109   26 30
110-114   27 31
115-119   28 32
120-124   29 33
125-129   30 34
130-134   31 35
135-139   32 36
140-144   33 37
145-149   34 37
150-154   35 37
155-159   36 37
160+   37 37

Cars First Registered After 6th April 2020

CO2 Emissions (g/km) Electric Range (miles) 2020/21 BiK Rate % - Petrol & RDE2 Diesels 2020/21 BiK Rate (%) - Non-RDE2 Diesels
0 N/A 0 4
1-50 >130 0 4
1-50 70-129 3 7
1-50 40-69 6 10
1-50 30-39 10 14
1-50 <30 12 16
51-54   13 17
55-59   14 18
60-64   15 19
65-69   16 20
70-74   17 21
75-79   18 22
80-84   19 23
85-89   20 24
90-94   21 25
95-99   22 26
100-104   23 27
105-109   24 28
110-114   25 29
115-119   26 30
120-124   27 31
125-129   28 32
130-134   29 33
135-139   30 34
140-144   31 35
145-149   32 36
150-154   33 37
155-159   34 37
160 - 164   35 37
165-169   36 37
170+   37 37

How Is Company Car Fuel Benefit Calculated?

If your employer pays for your fuel for private journeys, HMRC consider this to be an additional benefit in kind and you will have to pay extra tax on top of company car tax.

It's important to calculate how many private miles you cover in a year and whether this benefit is actually worth receiving in relation to the extra BiK tax you'll have to pay.

HOW TO CALCULATE COMPANY CAR FUEL BENEFIT - FORMULA

The calculation to work out how much BiK tax you'll pay on private fuel funded by your company is similar to working out your company car tax. You just need to replace the P11D value with the Fuel Benefit figure set by HMRC.

The Fuel Benefit figure is fixed for the financial year, but changes every 12 months, so you're likely to have to pay more fuel benefit each year. For the 2019/20 tax year, the Fuel Benefit is £24,100.

To calculate BiK tax for company car fuel benefit, you need to use the following formulae:

 

Fuel Benefit x BiK CO2 Rate = BiK Value

Then

BiK Value x Personal Tax Band = Annual Fuel Benefit Tax

 

HOW TO CALCULATE COMPANY CAR FUEL BENEFIT - EXAMPLE

Suzuki Vitara 1.4 Boosterjet SZ5 6-Speed Manual

  • Fuel Benefit - £24,100
  • CO2 Emissions - 131g/km
    • 30% BiK CO2 Rate
  • Personal Tax Band - Basic (20%)

£24,100 x 30% = £7,230

£7,230 x 20% = £1,446 annual tax payable on fuel, or £120.50 per month

In this example, if you're likely to spend more than £120.50 a month on fuel, it would be worth accepting your employer's offer to pay for your private fuel. However, if you don't spend that much on fuel, you'd actually be paying more with this benefit.