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Company Car Tax Explained!

Company Car Tax Explained!

A company car is a tax efficient way of rewarding an existing employee.  45% of employees say a company car is seen as a mark of achievement. It could also be the best way to attract new employees, with 64% of company car drivers agreeing whether a company car is offered or not is an important factor to consider when taking a new job. But, a company car doesn’t come for free, it is subject to tax, so what is company car tax and how do you work it out?

What is Company Car Tax?

If your employer has given you a vehicle that can be used as your own personal transport it will be considered a company car. The feeling of being valued by your employer and driving a shiny new car are perks most employees happily take! However, HMRC believe this perk should not escape tax free so sets a rate of tax for employees to pay for the use of their company car that they feel best reflects the value of this added extra above the employee’s regular monthly salary. Before an employee accepts a company car they may be interested to know how much they will be paying for the privilege, so here is Rivervale Leasing's guide to working out company car tax!

How do I Calculate Company Car Tax?

The official name given to any extra perks outside of an annual salary a company offers an employee, including a company car, is a Benefit-in-Kind (BIK). If an employee accepts one of these perks they will be required to pay BIK tax from their salary alongside their usual tax and National Insurance payments. To work out how much you will need to pay for your company car, you just need to use the following formula;

P11D Value X Benefit-in-Kind % X Personal Tax Rate

So, to calculate your company car tax payment you need the following information:

  • P11d Value - the value of the vehicle including VAT, all the optional extras and delivery charge. This value does not include road tax charges or the registration fee. The P11d value of your vehicle will be made available by the supplier.
  • Benefit-in-Kind % - vehicles are organised into groups based upon the level of emissions they produce to give a benefit in kind percentage. The emissions of any vehicle will be displayed on each relevant manufacturer website. There are different percentages for petrol and diesel vehicles and these tax bands can change on a yearly basis. The tax band for the financial year 2017/2018 can be seen below.

Company Car Tax Bands for 2017-2018

 CO2 emissions of vehicle (g/km) Petrol BIK Rate (%)Diesel BIK Rate (%) 
51-7513 16 
76-9417 20 
95-9918 21 
105-109 20 23 
110-114 21 24 
115-119 22 25 
120-124 23 26 
125-129 24 27 
130-134 25 28 
135-139 26 29 
140-144 27 30 
145-149 28 31 
150-154 29 32 
155-159 30 33 
160-164 31 34 
165-169 32 35 
170-174 33 36 
175-17934 37 
180-184 35 38 
185-189 36 39 
190+ 37 40 
  • Personal Tax Rate - the final factor to consider when calculating how much company car tax you will pay is how much you earn. Your payments will depend upon which income tax bracket you are in. If you are in the 20% bracket, you will pay 20% of the taxable portion of the car's P11D value, if you are in the 40% tax bracket you will pay 40% of the taxable portion of the car's P11D value.

Example Calculation of Company Car Tax

For this example, we will imagine your company car is petrol, has a P11D value of £20,000, has Co2 emissions of 130g/km and you are in the 20% tax rate bracket, your calculation would be as follows;

£20,000 X 25% X 20% = £1000

In this example, your company car would cost you £1,000 per year. If you take £1,000 and divide it by 12 you get £83.33, so £80.33 is how much of your monthly salary you will be paying for your company car.

As a general rule, the lower the value of the car and the lower the emissions the lower the monthly cost will be to you.

If the thought of all this maths has made your head spin, then don’t panic! On our website we have done all the hard work for you! Just select the make and model of car, choose your personal tax bracket from the drop down box and the monthly car tax amount you are likely to pay will be displayed for you as a guide!

company car tax calculator




The comments above do not necessarily reflect Rivervale's views unless clearly stated.

Car related news
25 November 2015
Written by Natalie Faughy
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