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.
Q: What is company car tax?
A: A tax which is payable on a certain percentage of the total P11d value of your car. You don’t start paying tax until you earn over £10,600 a year, after which 20 percent will be paid. When your monthly salary exceeds £42,385, you will pay 40 percent on any amount over this threshold. This is normally deducted each month from your salary.
Q: Are there any dispensations for low-emissions cars that aren't 100 percent electric?
A: Not anymore, even electric cars are now eligible to pay seven percent in the 2016/17 tax year.
Q: Is there a maximum price cap on the amount taxable on a company car?
A: No, after April 1 2011 the £80,000 cap no longer exists.
Q: Why are diesels so popular?
A: The simple answer is they generally produce less CO2, so the tax bill should be smaller.
However, they are usually more expensive to buy than an equivalent petrol version, so you have to make sure the higher P11D price doesn't outweigh any advantage from a lower tax band. Plus, diesel cars are currently penalised by a three percent surcharge which will be in place until at least 2021.
You also need to do your homework on fuel costs, because diesel costs more at the pumps than petrol and you need to meet the predicted fuel economy figures from the manufacturer to gain any real benefit.
Q: Will electric cars be exempt from company car tax?
A: From April 2015 zero-emitting cars are also subject to BIK tax.
Q: What about hybrid cars? Where do they come into it?
A: Hybrid cars currently conform to the same tax rules as petrol cars. This means they sit in lower bands, so you'll pay less tax for owning them.
Q: So how much should I expect to pay in company car tax?
A: You can use the Parker's company car tax calculator
The table below outlines the tax payable on company cars over the next few years, arranged with by a car's emissions output: Remember that you need to add a further three percent if you’re running a diesel car.
|% of P11D||2014/15||2015/16||2016/17||2017/18||2018/19|
|Price||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)|
Familiar company car tax terms
Benefit in kind (BIK) - this is any benefit which employees receive from employment but are not included in a salary. The obvious example in our case is company cars, which are taxed according to the income of the employee.
Emissions - the amount of gas the car emits from the exhaust. Measured in terms of CO2 for company car tax purposes.
g/km - the level of carbon dioxide emitted by a car is measure in grams per kilometre.
P11D- this is the form that each employer must fill in annually and send to the tax office.
P11D value - this is the value of your car including RRP, VAT, delivery and any extras (such as metallic paint or satellite navigation). It does not include road tax or first registration fee.
Personal tax allowance - this is a sum of money that you're allowed to earn without being taxed upon it - currently £10,600.