Do you own a car? Is it a company car? Well, some companies provide their employees with vehicles for work and personal use. The vehicles are subject to her Majesty’s revenue collection (HMRC) tax. If you are among the lucky few that enjoy these benefits, you have probably heard the terms P11D for cars and P11D value.
Let’s break down what P11D for cars means, its importance and its implications on your tax bill, and how P11D value correlates with it.
What is a P11D for cars?
P11D is a form that an employer provides the HMRC with for taxation purposes. It includes any benefits or cash given to the company employees and its directors—the company car owner’s details, usage, and information on the list price. Delivery charges are also inclusive.
What is the P11D value?
The P11D value is not a formal word. It roughly translates to the value of the car according to HMRC. P11D value can be summarised as the list price of a vehicle that does not include value-added tax(VAT) and the car’s first registration fees. However, other fittings like industrial ones are included in the evaluation of P11D for cars.
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How to calculate tax on employee’s P11D for cars?
This is variable and depends on the type of car the employee is driving.
P11D for cars is calculated by multiplying the car’s P11D value by the carbon dioxide (CO2) emission band that the car falls under. The resultant figure is your benefit in kind (BIK) amount, and it’s multiplied by your income tax ratio to find your company car tax tariffs.
The figures range from an introductory rate of 20% for an employee whose salary falls between 11851-46350 pounds, a higher percentage of 40% for an employee earning 46351-150000 pounds. The last category falls to high-income earners above 150000 pounds, and its rate is 45%.
The size of the engine also plays a role in the amount of company tax you pay. A 0-1400cc owner forks out 15%, while 1401-2000cc owner parts with 22%. A heavier engine 2000 cc upwards attracts a 32% rate.
To lower the company tax, you may opt for a lower CO2 emission or a car with a lower P11D value. Remember P11D for cars and P11D value do not intertwine.
How P11D for cars influences tax calculation
The P11D for cars document helps the HMRC to calculate yearly company tax. The form is supplied by the employer, although it’s the employee that pays the tax. P11D for cars affects tax calculation by indicating the welfare gain, vehicle-driven, and usage that an employee enjoys. It helps determine the BIK amount used to find the company tax you should pay.
Which cars pay less in tax
Some cars attract a lower tax when calculating P11D for cars. Cars can be separated into classic and used cars. Also, the age can be useful to set them aside and command different tax rates. If you want pocket-friendly cargo for a used one, classic cars usually cost more than £15,000, thus having a higher P11D value resulting in higher company tax.
Choose a car with:
- A lower engine capacity to lower the tax rates.
- An environmentally friendly car with lower CO2 emissions will lower your taxes when multiplied by your benefits in kind amount.
- A initial low-value
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If you are an employer, ensure you supply the HMRC team with P11D for car value forms to get the correct company tax amounts. Employees go for a car with lower CO2 emission rates to better P11D for the car’s value. Taxes are integral in running the country. Always pay for the P11D for cars in time.
Importance of paying taxes and avoiding fines
Taxes are vital in running the country. By paying taxes, you ensure a better health care system, the quality of education is maintained and improved. Taxes are also useful to train and pay the disciplined forces who guarantee national security. The road networks are improved and maintained through taxation.
Always strive to pay your taxes on time. Tax evasion is a crime. It can land you in jail, get you fined, or miss out on some opportunities for not being tax compliant. Paying taxes is a duty to try to be compliant.
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