Company car tax, or benefit-in-kind (BIK) tax, applies to anyone who has 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. That is the list price of the car, including any optional extras, accessories and VAT, but excluding the first-year VED and registration fee.
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 on – known as the BIK value – but the amount you’ll actually pay is based on your income tax band. For 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 30% BIK band. Therefore, the BIK value is £25,315 x 30% = £7,594.
To get the amount you’ll actually be charged in company car tax per year, you multiply the BIK value by your income tax band. A base rate (20%) taxpayer would pay £7,594 x 20% = £1,518 per annum. For a 40% taxpayer, the calculation is £7,594 x 40% = £3,038 per annum.
Company car tax is paid monthly, therefore dividing the figure by 12 will provide the monthly cost. It is deducted from your pre-tax salary.
You can 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 tax years 2021-22 through to 2024-25. 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.
Different rates apply to older cars registered before 6 April 2021.
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. The BIK for electric cars such as the Vauxhall Mokka Electric (below), was once 0%, however the rate currently stands at 2% and will gradually increase to 5% for 2027-28 financial year.
What about diesels – do I have to pay extra?
If you have a company car that was registered in 2018-2020, 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 the fuel benefit relate to a company car?
Fuel benefit applies if you have unrestricted access to a company car for private use and your company pays the full fuel bill. If you reimburse your employer for fuel, following the rates per mile set out in the quarterly-updated Advisory Fuel Rates, you do not incur a fuel benefit.
For cars and passenger vans the multiplier is £25,300, following the same rules as the P11D value of the car and is CO2 rating. For example, a plug-in hybrid with 40 miles range and CO2 below 50g/km will attract 12% of £25,300 as a fuel benefit charge, in addition to 12% of the P11D value as the car benefit in kind.
Vans and appropriate pickups and commercial vehicles attract a flat-rate fuel benefit of £688 per year for 2022-23.
Electric cars do not currently incur a fuel benefit charge, though you can be reimbursed for your charging costs. A charging point provided for your use and paid for by the company can still be an attractive benefit and an incentive to switch to a greener vehicle.
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 or 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.
It’s a similar situation if you take a cash alternative. If you receive an additional £6,000 per year in lieu of taking a company car that incurs BIK tax of, say, £3,560, you will be taxed for the full £6,000 – with a corresponding increase in National Insurance contributions, plus a potentially higher tax bracket to reflect your higher gross salary.
In other words, you’re going to be taxed on the benefit you actually receive, be it extra income or a vehicle, but you can potentially still save by opting for a vehicle that emits 75g/km of CO2 or less.
How much tax will I pay for having a company van?
We have a full guide to van tax available on a separate page, but the good news about company vans is that everything is charged at a fixed rate.
What’s more, you’ll only pay BIK on a van if you have personal use of it. You are allowed ‘reasonable’ use of a van before you have to pay BIK, but this means only taking it home if you’ve got a early start in the morning, and limiting personal-use journeys to a short detour to pick up a newspaper or similar. BIK will be applied if you use a van for the weekly supermarket shop, for instance.
The current van BIK rate is £3,600, and the amount you pay is calculated by multiplying that by your income tax banding. This works out at £720 per year at the 20% rate or £1,400 per year at the 40% rate. If lots of people share the van, the BIK cost can be divided between them, and remember the higher rate only applies to the income or benefit over the threshold.
The same rules apply to pickups.
Common company car tax terms
Benefit-in-kind (BIK): this is any benefit which employees receive from their employer that’s not included in their salary. In our example, we’re talking about company cars, which are taxed according to the employee’s earned salary.
Emissions: the gas a 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 first-year VED or registration fees.
Personal tax allowance: this is the sum of money you can earn without being taxed. It currently stands at £12,570.