Company Car Tax Explained
All you need to know about company car tax including how it is calculated and what it means for you as a company car driver.
What is Company Car Tax?
If you are fortunate enough to have a job that entitles you to a company car, you will have to pay Benefit in Kind (BIK) tax if you use it for private journeys, which includes driving it to and from work. The amount of BIK tax you have to pay each month is calculated by HMRC using the following four criteria:
- Your Annual Salary – The amount of tax you pay is determined by your income tax bracket. £11,501 to £45,000 (20% bracket), £45,001 to £150,000 (40% bracket), over £150,000 (50% bracket).
- The total cost of your car – Also known as the P11D Value, this includes the car’s list price, delivery charge, VAT and any extras you choose when ordering the car.
- CO2 Emissions – The amount of carbon dioxide in the car’s exhaust gases. The lower your CO2 emissions are, the less tax you’ll have to pay.
- Engine Fuel Type – You’ll currently have to pay a higher percentage for driving a diesel engine car than a petrol equivalent.
Company Car Tax Calculator
Manually calculating how much BIK tax you need to pay for a company car is explained below. However, this can be quite time consuming, especially if you’re looking at a number of different models and manufacturers. Fortunately, there are various tax calculators available online that can make the process a lot easier. We recommend using the tax calculator on the Company Car Today website.
How is Company Car Tax Calculated?
Obtain the official Recommended Retail Price price of the car you are interested in, including any extras from the manufacturers website. This price is also known as the P11D value. Check the vehicle’s CO2 (g/km) emissions and cross-reference this figure with the latest Benefit in Kind (BiK) rates available at www.companycartoday.co.uk.
The BiK rate tells you the percentage of the car’s P11d value that you’ll have to pay tax on, at your usual personal tax rate. You’ll see from the BiK rates listed that lower-emitting vehicles carry a lower tax burden, because a smaller percentage of the P11d value is taxed.
With all this information to hand, you need to carry out the following calculation. Multiply the vehicle’s P11d value by the BiK rate. Then multiply this total figure by your income tax rate (either 20%, 40% or 50%). This generates your annual company car tax burden, which is deducted at source from your monthly salary.
(P11d Value x BiK Rate) x Your Tax Rate = Your Company Car Tax
Commercial vehicles are taxed differently to conventional company cars. The BiK is set at a flat rate, irrespective of CO2 emissions or price. For the 2018/19 tax year, BiK for commercial vehicles is fixed at £3,350. If you pay tax at 20%, this equates to £670 a year or £55.83 a month. For a 40% tax payer it works out at £1,340 per year or £111.67 a month.