What is company car tax?
A company car is something that you get that’s in addition to your salary; it’s considered as a benefit in kind (BIK). This means that it will be taxed just like your salary by the HMRC.
Your company car tax will be charged on the percentage of the total value as you will have declared on your P11D form (the end-of-year expenses and benefits form either your employer or yourself send to HMRC). Your car’s P11D value will be based upon the car’s VAT, list price, options and delivery that costs £100 or more, including its CO2 emissions.
This is one of the main reasons why diesel cars are very popular for company use. They offer better miles-per-gallon and have lower CO2 emissions, so they are typically cheaper when it comes down to company car tax.
Diesel cars are currently supplemented under tax rules, but as of 2016/17, these rules will be scrapped. What’s also unclear is the recent VW emissions scandal, so you may have to take that into consideration too.
Electric and hybrid cars are becoming more popular mainly because of their tax breaks, but if you have a high annual mileage they may not be suitable.
Calculating your car tax
Follow these steps to calculate your car tax:
- Work out the car’s P11D value.
- Multiply the vehicle’s company car tax rate (this will be dependent CO2 emissions) by the P11D value. This will give you the BIK amount.
- Then multiply your personal tax rate by the BIK amount.
This figure will be the amount of company car tax you will need to pay.