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What Are Company Car Tax Rules? Everything You Should Know

All you want is to get to work in the morning and do the travel you need to complete for your job. A company car could be your means of doing so.
But with tax season just around the corner, you're now worried about making sense of your company car tax (and how much you'll have to pay).
Don't worry -- it's actually quite simple. We're here to walk you through all the company car tax rules you need to know before setting out for work.

What Is the Company Car Tax?

The company car tax, or Benefit-in-Kind (BIK) tax, is one of many revenue streams used by Her Majesty's Revenue and Customs (HMRC). Essentially, since your company car is viewed as an additional taxable benefit outside of your National Insurance contributions, it's subject to tax levies.
Before we take a closer look at the details of the tax, let's address some common jargon you're likely to encounter to make the whole process easier to understand.
Common Jargon
As we said, the company car tax is fairly straightforward. That said, there is some technical jargon involved. Here are a few terms you'll need to know:

  • Benefit-in-Kind (BIK): Any benefit an employee receives outside their regular salary
  • Emissions: The amount of carbon a car emits from its exhaust, one of the main factors in calculating your tax rate
  • g/km: Grams per kilometre, how the carbon dioxide emissions are measured
  • List price: The manufacturer's list price, including factory-fittings
  • P11D: The tax form an employer sends each year
  • P11D value: The value of the company car, including list price, VAT, and the value of optional extras
  • Personal tax allowance: The amount you can earn without paying tax

Once you've got a handle on those, let's talk about the company car tax.

Company Car Tax Rules: Who Pays the Company Car Tax?

As an employee, you have to pay the company car tax if any of the following apply to you:
 - You're an employee who uses a company car
 - You're self-employed but do business as a private limited company


As an employer, you have to pay the company car tax if:
 - You pay Class 1A National Insurance on your company cars
 - You've filed a P46 car tax form for a company vehicle


If you're confused, think of it this way: if you or your family use a company car for personal use (which includes commuting), then you'll have to pay tax on it.

How to Calculate Your Company Car Tax

If any of those situations applied to you, then you're facing company car taxation.
Calculating your tax rate isn't difficult, so long as you account for the right factors.
Your tax rate is affected by:

 - The car's P11D value
 - The car's fuel type (petrol, diesel, hybrid, or electric)
 - How much carbon dioxide the car emits
 - Your income tax bracket


That said, your tax rate can be reduced if you work part-time, pay something toward's the car's costs, or if it has low CO2 emissions.

The Best Cars to Reduce Tax Liability

But wait, you ask: does that mean a car with lower CO2 emissions has a lower tax burden?

Yes!

In fact, electric cars can help reduce your BIK rate.
Essentially, the tax is designed to incentivize employers and employees to move towards eco-friendly options. Because of this, electric cars and cars with lower CO2 emissions are taxed at a lower rate.
The flipside is true as well: diesel engines are taxed at a higher rate. Any diesel engine that can't meet the RDE2 real-world driving section of the WLTP efficiency standards has a 4% surcharge added to their BIK tax form.
Because of this, your best bet is to go for a hybrid car or an electric car, as this will reduce your tax burden as much as possible.

If you're looking for a company car, your best options include:
 - Peugeot Ion
 - Renault ZOE
 - Volkswagen e-Golf
 - Nissan Leaf


Cars with comparable features will also do well when tax season rolls around.
Note: a petrol car will be taxed better than diesel, but worse than hybrid or electric.
HOWEVER these examples are only good if you have a company car as more of a perk and do limited miles over short distances. If you are a high mileage user then the tradition diesel is still the most economical and practical option. You then need to consider some of the latest model with new diesel engines which can still offer low CO2 emissions.

Company Car or Cash Allowance?

Some employees ask: is it worth it to get a company car, or trade it in for a cash allowance in order to get a personal lease?
A cash allowance is a cash benefit scheme many employers are turning to due to changes in legislation. As the name implies, it's a cash allowance paid monthly to employees for use on business purposes, such as leasing a car for professional use.
To calculate if this allowance is a better option you need to look at the Net pay (allowance after tax) along with the tax cost of the company car to give you the real amount you have available as an alternative to the company car. Then if you look at a personal lease with maintenance so you fix the running costs going forward, just add insurance and fuel. Again we can help with this calculation and search for the cheapest car lease deal
Ultimately, compared to a personal car lease deal, a company car offers greater peace of mind for the employee, as they don't need to worry about insurance, maintenance, or servicing fees. And when you work out the actual cost personally, in company car tax, then it can offer good value with the right car choice.

Need to Lease a Car for Work?

If you need to lease a car for work, you should be able to focus on the problem at hand (the car) and not spend excessive time worrying about company car tax rules.
They're easy to follow, so long as you choose the right car and a sensible leasing agreement.

We can help with both.

We offer personal and business car leasing to people like you -- people who don't have time to waste on a car that won't work for them. Click here to check out our available electric cars, or get a free leasing quote today.

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Posted on 20th February 2019 at 5:25 PM

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