Having a company car and paying company car tax, rather than owning or leasing a car can be a very attractive perk of some jobs. You will often get a new car every few years.
Depending on your salary and the company vehicles emissions a, it can be more cost effective to have rather than buying or leasing a car yourself. If you are looking at getting a company car, here is everything you need to know about company cars, Benefit-in-Kind and how company-car tax is calculated.
How does company car tax work?
Like all Benefit In Kind Tax’s, a company car is considered a non-cash benefit to an employee.
If your employer allows you to use the vehicle for private use business, you will have to pay tax.
The tax you pay is based on the taxable value of the company car. There are 2 ways employers do this:
- Working out the cash equivalent of the benefit and adding it to the employees’ salaries. This is then taxed through payroll.
- Using a P11D form.
What do I need to know in order to calculate the company car tax i'll be liable to pay:
- P11D Value - That's the list price of the car you've chosen plus delivery costs and any extra you selected
- CO2 emissions - You need to know the CO2 emissions as g/km of your car. You can find this on the V5
- Income Tax Band - You need to know whether you pay 20%, 40% or 45% income tax
- In the current 2022/23 tax year, all fully electric cars are eligible for a 2% BiK rate. This is a huge incentive and you can save thousands of pounds annually when their employers offer EVs as company cars.
How Do I Calculate Company Car Tax?
P11D value(£s) x BiK rate(%) x Income Tax Band (%) = Annual tax payable
Example - Jaguar I-Pace
- P11D value - £72,390
- CO2 emissions - 0g/km
- BIK rate - 2%
The value of the car for company-car tax purposes is £1,447.8 (2% of £72,390).
If you live in England or Wales, the amount of company car tax you pay depends on whether you’re a 20%, 40% or 45% income-tax payer.
You’ll pay HMRC a percentage of £1,447.8 based on the rate of income tax you pay; in this case, either £289.56, £579.12 or £651.51 a year.
*Pricing correct as of December 2022