Company car tax guide

  • Your complete guide to company car tax
  • How is your company car tax caluculated
  • What it means for you as a company car driver?

Company car tax explained

Company car tax, or benefit-in-kind (BIK) tax, applies to anyone that is entitled to personal use of a company vehicle. In most cases this is likely to be a company car or van but could also apply to a company pool car or hire cars paid for by your employer, if you use them for personal trips – including commuting.

How is company car tax calculated?

Company car tax is based on the value of the car, the amount of CO2 it emits and your income tax band. For the purposes of calculating company car tax, you need to know the P11D Value of your company car. Essentially, this is the list price of the car, including any optional extras, accessories and VAT, but excluding the first-year registration fee and VED.

Note: The P11D value cannot include any manufacturer discounts or the plug-in car grant.

You’ll also need to know what BIK band your car sits in. The bands are published by HMRC and are based on CO2 emissions (and electric range for hybrids). You can view them in the section below.

The BIK band dictates what percentage of the P11D value you’ll be taxed – known as the BIK value - but the amount you’ll actually pay is based on your income tax banding. As an example, the Volkswagen Golf 1.5 TSI Style has a P11D value of £25,315 and emits 125g/km of CO2, putting it in the 29% BIK band. Therefore, the BIK value is £25,315 x 29% = £7,341.

To get the amount you’ll be charged in company car tax per year, you multiply the BIK value by your income tax band. A base rate (20%) taxpayer will pay £7,341 x 20% = £1,468 per annum. For a 40% taxpayer, the calculation is £7,341 x 40% = £2,937 per annum.

Company car tax is paid monthly, therefore dividing the figure by 12 will provide the monthly cost. You can also find the company car tax costs for all available new cars using the Fleet News company car tax calculator at our sister site.

What are the current company car (BIK) tax bands?

The table below outlines the company car tax bands for the current tax year and the next three years. The bands are based on your car’s CO2 emissions (and electric range for hybrids). These bands apply to vehicles registered after 6 April 2021.

CO2 (g/km) Electric range
(miles)
2021-22 (%) 2022-23 (%) 2023-24 (%) 2024-25 (%)
0 N/A 1 2 2 2
1-50 >130 1 2 2 2
1-50 70-129 4 5 5 5
1-50 40-69 7 8 8 8
1-50 30-39 11 12 12 12
1-50 <30 13 14 14 14
51-54   14 15 15 15
55-59   15 16 16 16
60-64   16 17 17 17
65-69   17 18 18 18
70-74   18 19 19 19
75-79   19 20 20 20
80-84   20 21 21 21
85-89   21 22 22 22
90-94   22 23 23 23
95-99   23 24 24 24
100-104   24 25 25 25
105-109   25 26 26 26
110-114   26 27 27 27
115-119   27 28 28 28
120-124   28 29 29 29
125-129   29 30 30 30
130-134   30 31 31 31
135-139   31 32 32 32
140-144   32 33 33 33
145-149   33 34 34 34
150-154   34 35 35 35
155-159   35 36 36 36
160-164   36 37 37 37
165-169   37 37 37 37
170+   37 37 37 37

 

For older cars (registered before 6 April 2021), different rates apply.

Are there company car tax discounts for electric and hybrid cars?

The BIK rates shown in the table above apply to all vehicles registered after 6 April 2021. Last year, the Government applied a 0% BIK rate for electric cars such as the Vauxhall Mokka-e (below), but this increased to 1% as of 1 April 2021.

Vauxhall Mokka-e (2021) electric car

What about diesels - do I have to pay extra?

A 4% surcharge applies to any diesel car that does not meet the latest Euro 6d emissions standards – known as RDE2 compliance. The surcharge is applied to the BIK band, so a car that falls into the 24% band would be pushed up to 28%. All cars sold after 1 January  2021, must comply with RDE2, however, so the surcharge will only apply to older vehicles.

How does company car tax compare with salary sacrifice or cash alternative schemes?

Unlike company car schemes, where the company pays for the car, in salary sacrifice arrangements you pay for the car by ‘sacrificing’ some of your pre-tax salary. A salary sacrifice car can still be eligible for BIK tax. A driver will be taxed on whatever the greatest is between:

•    the Income Tax due on the amount of salary sacrificed on the finance rental of the vehicle, or
•    the Benefit in Kind (BIK) charge on the car

For cars with CO2 emissions of less than 75g/km the benefit in kind rules automatically apply. Making electric and plug-in hybrid cars more financially attractive. You can find out more about salary sacrifice on Parkers.

For those offered a cash alternative, the situation is similar – if you receive an additional £6,000 per year in lieu of taking a company car with a BIK of, say, £3,560, you will be taxed for the full £6,000 – and a corresponding increase in National Insurance, plus a potentially higher tax bracket on that income may apply.

In other words, you're going to be taxed on the benefit you actually receive, be it income or vehicle, but can potentially still save by opting for a vehicle with 75g/km or lower emissions.

How much tax will I pay for having a company van?

If you have personal use of a company van then BIK may be applied at a base rate of £3,430 (or £2,058 for zero emission vans). You are allowed ‘reasonable’ use of a van before you have to pay BIK, so you will be able to take it home at night; but if you use a company van as a weekend runabout or to go on holiday, BIK will need to be applied.

To calculate your van BIK you multiply £3,430 by your income tax banding. If multiple people share the van, divide that £3,430 figure by the number of employees using it first.

You can work out your company van tax costs on our sister site using the Commercial Fleet Company Van Tax Calculator.

Ford Transit Custom (2021)

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 calculated by 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.

Further reading

Company cars news and advice