Company Car Tax

The basis for taxing those who use company cars is to tax a figure calculated by multiplying the car’s list price by an emissions-based percentage (the “appropriate percentage”), with a 3% surcharge on diesel powered cars.

The maximum taxable value of the benefit is 37% (previously 35%) of the list price of the car when first registered. The list price includes car tax (if applicable), Value Added Tax and delivery charges.

Cars running solely on diesel fuel are subject to a 3% supplement.

From April 2015 the five year exemption for zero carbon and the lower rate for ultra-low carbon emission cars will come to an end. Two new bands will be introduced for ultra-low emission vehicles (ULEVs). These will be set at 0-50 g/km (5%) and 51-75 g/km (9%).

The remaining appropriate percentages will increase by two percentage points for cars emitting more than 75 g/km, to a new maximum of 37%. The detailed figures are shown in the Appendix.

CO2 emission information

For all cars first registered from at least November 2000, the definitive CO2 emissions figure for tax purposes is recorded on the Vehicle Registration Document (V5). Under an agreement with HM Revenue & Customs (HMRC), the Society of Motor Manufacturers and Traders (SMMT) is providing a CO2 emissions enquiry service on their website at www.smmt.co.uk for cars first registered from January 1998.

Older Cars

Cars first registered before January 1998, for which there are no reliable CO2 emissions data, will be taxed according to their engine size, as follows:

Engine Size (cc)
Percentage of car's
price charged to tax

Up to 1400
1401 – 2000
Over 2000

15%
22%
32%

Car Fuel Benefit

Where the employer pays for any fuel used privately by the employee, there is an additional benefit charge calculated by applying the CO2-based car benefit percentage to the car fuel benefit charge multiplier of £22,100 (2015-16).

Employee Contributions

Where the employee is required, as a condition of the car being made available, to pay for the private use of a car the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will reduce its price for tax purposes.

By contrast it is "all or nothing" for the car fuel benefit charge, which remains at the full value unless the employee pays for all private fuel!

HMRC publishes advisory fuel rates for company cars which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.

Advisory fuel rates (from 1 September 2015)

Engine size
Petrol
Diesel
LPG
Rate per mile
Rate per mile
Rate per mile
1400cc or less

11p

9p

7p

1401 - 1600cc

14p

9p

9p

1601 - 2000cc

14p

11p

9p

Over 2000cc

21p

13p

14p

Petrol hybrid cars are treated as petrol cars for this purpose.

Tax Payable

These standard charges are subject to income tax at basic, higher or additional rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code. 

Tax Free Benefits

Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

Pooled Cars

There is no tax for using a pooled car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others. 

Please note: A pooled car must not normally be kept overnight at or near an employee's home.

"Lower Paid" Employees

The provision of a car for an employee (NOT a director) who is paid at a rate below £8,500 per year (including the value of benefits) does NOT attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.

Special Consideration for Sole Traders

If your spouse is employed in your business (but not as a partner), it can be very tax efficient to provide them with a car, as long as they earn well below £8,500. The use of the car can be tax-free in their hands, and the business will get full tax relief on all the expenses connected with the car, provided you can demonstrate the car is necessary for business purposes.

Business Use of Employees’ Own Vehicles

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own vehicles. This section explains the tax and national insurance position. A statutory system of Approved Mileage Allowance Payments (AMAPs) applies for employees using their own vehicles for business journeys, as follows:

Cars and vans: On the first 10,000 miles in the tax year 45p per mile
On each additional mile above this 25p per mile
Motor cycles   24p per mile
Bicycles   20p per mile

It is no longer possible to make a claim for tax relief based on the actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Unless the employee is reimbursed at a rate higher than the AMAP rate, the payments do not need to be reported on a P11D. If the employer pays less than these rates, it is possible for the employee to claim tax relief for the shortfall (Mileage Allowance Relief).

Rates of up to 5p per mile, per passenger, are also tax- and NICs- free when paid for the carriage of fellow employees on the same business trip. From April 2011 allowanceS for passenger payments have been extended to volunteers.

Company vans

The taxable benefit for the unrestricted use of vans will be £3,150. There is a further £594 of taxable benefit if the employer provides fuel for private travel.

Van and fuel charge 2015-16

Tax (20% taxpayer)

£748.80

Tax (40% taxpayer)

£1,497.60

Tax (45% taxpayer)

£1,684.80

Employer's Class 1A NICs

£516.67

Van drivers can avoid the benefit in kind charge of £3,150 per year, if they agree not to use the van for personal journeys. Driving to and from work is acceptable as long as there is a reasonable amount of business use. It is advisable to keep a regular check on the vehicle’s mileage to ensure the ‘only for business rule’ is kept.

As previously announced the van benefit for zero emission vans is to be increased on a tapered basis so that there will be a single van benefit charge applying to all vans by April 2020. For 2015-16 the charge will be 20% of the value of the standard van benefit charge (i.e. £630) There is no fuel benefit for such vans.

Tax Saving Check List

  • Keep adequate records of business mileage.
  • Always check your tax code to see that the correct benefit is being applied.
  • Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
  • If you have low private mileage, you may be better off if you pay for all your own private fuel.
  • If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
  • Encourage your employer to apply for a P11D dispensation.
  • If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.
  • Tax-free parking is a must!

Company Car Tax 2015-16

CO2 emissions
(g/km)
Appropriate percentage
Petrol
%
Diesel
%
0  – 50 5 8
51  – 75 9 12
76  – 94 13 16
95 – 99 14 17
100 – 104 15 18
105 – 109 16 19
110 – 114 17 20
115 – 119 18 21
120 – 124 19 22
125 – 129 20 23
130 – 134 21 24
135 – 139 22 25
140 – 144 23 26
145 – 149 24 27
150 – 154 25 28
155 – 159 26 29
160 – 164 27 30
165 – 169 28 31
170 – 174 29 32
175 – 179 30 33
180 – 184 31 34
185 – 189 32 35
190 – 194 33 36
195 – 199 34 37
200 – 204 35
205 – 209 36
210 and above 37

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