Company car tax

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What is it?

Company car tax, officially known as Benefit in Kind tax (BIK), is the tax paid by an individual on the ‘benefit’ of receiving a company car for personal use

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How is it calculated?

First, the BIK value of the car is calculated. This is done by applying the BIK rate of the vehicle to its P11D value

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P11D Rating

Every vehicle is given a P11D rating by the government, which is calculated as the effectively the cost of the vehicle + VAT. BIK rates are set as a % by the government depending on CO2 emissions

Example of calculating company car tax

The BMW 330e plug-in hybrid has a P11D value of £38,540. It’s level of emissions means it has a BIK rate of 12%. Therefore the BIK value is 12% of £38,450 which equals £4625.

The BIK the individual then pays is calculated by the income tax bracket you fall into against that value. If you fall into the 20% income tax bracket, you pay 20% of that value, if you fall into the 40% income tax bracket, you pay 40% of that value.

An individual in the 40% income tax bracket would pay 40% of £4625 which equals £1850 per year. To give a comparison between hybrid and diesel, the same individual driving a diesel version of the BMW 330 would have to pay £4470 in BIK tax.

Top Tip


As well as the employee paying BIK on their vehicle, the employer must pay employer’s national insurance on the vehicle’s BIK value. This is set at 13.8% but is reduced depending on the vehicle’s emissions, so it will be less for electric and hybrid vehicles.

BIK comparison

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Kia e-Niro

P11D value of £36,440
BIK rate of 0%
BIK value of £0
BIK paid at 40% = £0

Audi A4 SLine Saloon

P11D value of £35,000
BIK rate of 32%
BIK value of £11,200
BIK paid at 40% = £4480

Despite being £1440 cheaper than the Kia e-Niro, the Audi is £3040 more expensive to run on BIK tax alone.

What is it?

A car salary sacrifice scheme involves sacrificing a portion of pre-taxed annual income in return for a fully expensed lease vehicle. One of the main benefits of the scheme is the tax savings for both the employee and employer.

How is it calculated?

How is it calculated?

The major saving for emloyees comes as you no longer pay income tax and National Insurance (NI) on that portion of income, instead you pay a Benefit in Kind (BIK) tax on the benefit of receiving the car, which depending on your choice of vehicle can be significantly less. The employer can make savings on the reduced NI and corporation tax on the salary sacrificed and the Class 1A NI arising on the BIK.

How does it benefit low emissions vehicles?

How does it benefit low emissions vehicles?

Employees paying tax on the Benefit in Kind of receiving a car through the scheme can make significant savings by choosing a low emissions vehicle. BIK rates on electric vehicle are currently ZERO, meaning you don’t pay a thing. Rates have also been reduced for hybrid vehicles with low emissions, savings aren’t quite as stark, but it’s far cheaper than what you’d pay with a regular vehicle on the scheme. You can save on income tax and NI on the portion of salary sacrificed as well as paying no (or significantly reduced) tax by going fully electric.

Write down allowance is a type of capital allowance you can claim on cars you buy and use in your business. This means you can deduct part of the value of the vehicle from your profits before you pay tax. Write down allowances on vehicles are separate to annual investment allowance (AIA) and can still be written down without contributing to your total AIA limit.

How is it calculated?

How is it calculated?

The rate you can claim depends on the CO2 emissions of the car. You can claim either a first year allowance, a main rate allowance or a special rate allowance. It's worth noting that you can only claim capital allowance if you own the vehicle, it doesn't count if the vehicle is being leased.

How does it benefit low emissions vehicles?

How does it benefit low emissions vehicles?

Fully electric vehicles and vehicles with emissions of less than 50g/km2 qualify for a first year allowance which means you can deduct the full cost from your profits before tax. Vehicles with emissions between 50-110g/km2 qualify for a main rate allowance which allows you to deduct 18% of the cost of the vehicle from your profits before tax. To give this some context, can only claim 6% of the value of regular vehicles with emissions of over 110g/km2.

What is road tax?

Road tax, officially known as Vehicle Excise Duty (VED), is an annual tax paid to drive your vehicle based on its tailpipe CO2 emissions.

How is it calculated?

How is it calculated?

VED is calculated based on a vehicle’s CO2 emissions and its listing price. The amount of VED you pay is determined by levels of emissions (in g/km2) set by the government. The higher the emissions produced by your vehicle, the higher the VED you pay.

The government allow you to benefit from favourable first year rates, which then increase slightly to a standard rate you will pay from then on.

Any vehicle with a list price of over £40,000, regardless of the emissions it produces, have to pay an annual supplement for 5 years.

How does it benefit low emissions vehicles?

How does it benefit low emissions vehicles?

The government have introduced favourable rates for electric and low emission hybrid vehicles. Electric vehicles pay £0 VED in their first year and all subsequent years, meaning they pay no road tax. Plug-in hybrids enjoy a reduced first year rate of as low as £15 and a subsequent rate of about £140.

However, the premium on all cars listed at >£40,000 does apply to electric vehicles. So this must be included when calculating your annual road tax and can see the cost increase.

What are they?

There is currently one congestion charge in the UK which applies to an area in central London . An Ultra-Low Emission Zone charge applies to the same area in London as the congestion charge. Low Emissions Zones are found in other cities in the UK such as Brighton, Glasgow, Oxford and Norwich, with plans to adopt them in Leeds, Nottingham, Derby, Birmingham and Southampton.

How is it calculated?

How is it calculated?

The London Congestion Charge is £11.50 for daily use with a further £12.50 fee on top of this for use of the Ultra-low Emissions Zone.

Low Emissions Zone charges in other areas of the UK mostly apply to buses but the ones that charge cars cost around £10 per day.

How does it benefit low emissions vehicles?

How does it benefit low emissions vehicles?

Electric vehicles and low emission hybrids are exempt from congestion and Low Emissions Zone charges. Although they aren’t widely used outside of London right now, as more and more are introduced you can save hundreds of pounds per year if you are a regularly driving around city centres.

What is it?

Fuel benefit charge is the tax payed by an individual if they get their vehicle fueled by their business. The government see this as a benefit and hence its taxable.

How is it calculated?

How is it calculated?

It is calculated in relation to the BIK rate of your vehicle. Each year the government sets a fixed figure for the value of fuel benefit, this year its £24,500. You then apply your BIK rate to this figure to find out the value of your fuel benefit, which you then pay against your income tax bracket.

If your BIK rate is 21%, the value of your fuel benefit would be £5145. You’d then pay your fuel benefit at either 20% or 40% of this figure. Your fuel benefit at 20% would be £1029.

How does it benefit low emissions vehicles?

How does it benefit low emissions vehicles?

Electric vehicles don’t have to pay a fuel benefit charge on electricity. The same applies to the electricity used by plug-in hybrid vehicles, but they do have to pay it on the petrol or diesel they use.

What is it?

Fuel duty is the tax payed on petrol and diesel.

How is it calculated?

How is it calculated?

The rate of fuel duty is set by the government. At the moment for petrol and diesel vehicles it is £0.57p per litre and is included in the price you pay at the petrol station.

How does it benefit low emissions vehicles?

How does it benefit low emissions vehicles?

There is no fuel duty on electric vehicles. Using electricity to ‘fuel’ your vehicle is currently not taxed. Plug-in hybrid vehicles still pay fuel duty on the petrol and diesel they use but not on the electricity they used to charge their battery.

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