The objective of every business organisation or company is to make a profit. The use of cars and trucks has made a significant impact on the growth and success of businesses. The employees play a role in the business enterprise; hence, some companies avail the vehicles for use by their customers and profit through the company car tax band. Read through this article to be enlightened about company cars, how HMRC car tax is calculated, and which cars get taxed.
What are company car tax bands?
When a company car is given to its employees for private or personal use rather than for business tasks like going for business meetings, going for a business conference, and other business activities required by the company, then the employee given the car is entitled to a company car tax. Therefore, a company car tax band is the tax from the proportion of the car value based on the total taxable income of the employee. The taxes may be from 20%, 40%, or 50%, depending on your total net income a month.
Read more: Guide to Tax and Insurance of Business Cars
HMRC Car Tax & Company Car Tax Bands?
You may wonder what HMRC is and how it is related to company car tax bands. HMRC is from the word Her Majesty’s Revenue and customs, which is based in the UK and is responsible for all tax regulations, including the company car tax bands. Below, we have a set of rules and regulations stipulated to ensure a flowing and effective HMRC car tax;
- It would be best to let the HMRC know of all the company cars that have been set aside for private use away from business activities.
- In case of termination of use of a company car to an employee, they are stopped from using the car and are no longer in possession of it.
- Inform the HMRC if an extra company car has been issued to someone else.
As long as the company has met the rules above, the HMRC should be involved. The company should now check on the HMRC web page to fill to file the HMRC car tax.
What taxes should be paid on which cars?
In 2021 April, the HMRC reviewed how taxes were being collected and how they should be conducted. The new laws were said to be effective from 6th April 2021, and it was to lower the taxes for cars that had low to zero CO2 emission. All company cars were to be subjected to tax following the new guidelines set. The April guide indicated that the car tax is checked depending on how much CO2 is permitted per gram /kilometers. If your car produces a lot of CO2, your taxes become very high due to environmental pollution. Regardless of the HMRC car tax, your car may be exempted when ;
- It’s a pool car; this means that the vehicle is readily available to all employees, whereby they can use it in case a company task assigned, since the car is always on-site and around the premises.
- The car is purposely assigned for business duties, and every trip it makes involves the business only.
- If the car is given to any disabled employee, the company car ferries them from work to their homes.
- If the car belongs to any number of the board in a limited liability company, or you happen to be the owner. If the company car at your disposal makes any of the mentioned rules, then the company car tax bands are issued to the company, and you may be paid for a (BIK) Benefit- In-kind fee.
How much are the taxes and their calculation?
If you had agreed to be offered a company car and it does not meet any of the exemption rules provided, then you are entitled to a company car tax band. Following the guide on the tax rate as per the April tax rate, your tax evaluation process involves;
- CO2 emissions are the pollution caused by the release of harmful gasses produced by the use of diesel and petrol. If your car emits more CO2 to the environment, you will calculate the gas by each g/ km covered.
- Diesel surcharge- there are car brands that have not followed the WLTP (World harmonised Light Vehicle Test Procedure) whereby the car engine is subjected to the use of diesel instead of petrol. Whereby the diesel tax increases more by 4% compared to petrol use.
- BIK – the benefit-in-kind, which is the calculation based on the RRP, VAT, delivery prices in addition to extras, and the CO2 emission power.
- Where the HMRC car tax is calculated by multiplying your P11D value by the company’s tax rate, which accumulates to your BIK, multiply it again to your tax rate of the personal net income of maybe 20%, 40%, or 50%.
- However, some cars like BMW, Volkswagen, which are primarily electric and have close to zero CO2 emission governed by the April 2021 rule, can pay a tax of close to 0% of 1% and 2%. A company car can be very efficient and effective and less expensive than everyday travel expenses, hence the mandate to adopt the most compelling new way of the company car.
Read more: Switching to Electric Company Cars