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.
Company Car Tax Changes April 2018
From 6th April 2018 company car tax has changed for diesel car drivers. Previously, diesel company car drivers paid a 3% surcharge. This has now increased to 4% for any diesel car which does not have a RDE2 pass certificate. The RDE2 is an emissions test which takes place in real world driving conditions rather than on a rolling road in response to recent emissions scandals, a car will only get a pass certificate if Euro 6 standards are met. As soon as a vehicle has a RDE2 pass certificate it will not be subject to any additional surcharge and will have the same Benefit in Kind rate as a petrol car.
The RDE2 test was still under review at the beginning of 2018. It is thought the majority of cars will not be tested until 2020, so diesel drivers are likely to face the 4% surcharge for the next 2 years. The table below shows the Benefit in Kind rates for 2018/2019 and 2019/2020.
Company Car Tax Bands 2018 - 2019
|Benefit in Kind 2018/2019 (%)||Benefit in Kind 2019/2020 (%)|
|Co2 emissions (g/km)||Petrol, electric and diesel vehicles with a RDE2 pass certificate||Diesel without RDE2 pass certificate||Petrol, electric and diesel vehicles with a RDE2 pass certificate||Diesel without RDE2 pass certificate|
|95 - 99||20||24||23||27|
|100 - 104||21||25||24||28|
|105 - 109||22||26||25||29|
|110 - 114||23||27||26||30|
|115 - 119||24||28||27||31|
|120 - 124||25||29||28||32|
|125 - 129||26||30||29||33|
|130 - 134||27||31||30||34|
|135 - 139||28||32||31||35|
|140 - 144||29||33||32||36|
|145 - 149||30||34||33||37|
|150 - 154||31||35||34||37|
|155 - 159||32||36||35||37|
|160 - 164||33||37||36||37|
|165 - 169||34||37||37||37|
|170 - 174||35||37||37||37|
|175 - 179||36||37||37||37|
For 2020/2021 the way Benefit in Kind is charged is going to change again. From April 2020, the pure electric range of vehicles will be considered. The longer the pure electric range the lower the Benefit in Kind rate will be.
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.
- 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!
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