As it stands there are two parts to calculating UK company car tax. The first part is what the company pays. The second part is what the employee pays. These amounts are dependents on the car’s value, CO2 emissions and the employee’s income-tax bracket.
The amount of company car tax paid by the company is determined by the car’s P11D value and its CO2 emissions.
For employees calculating car tax is a little more complicated. The amount of tax an employee pays is the P11D value multiplied by the Benefit-in-Kind band multiplied by the employees tax bracket (P11D value) x (BiK band) x (tax bracket).
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When it comes time to calculate company car tax it is important to become familiar with P11D. The P11D form is completed by the employer and given to HMRC for company car tax purposes. This form tells HMRC how much National Insurance a company needs to pay for all the benefits and expenses they provided during the year. This includes any cash benefits like interest-free loans, private healthcare and of course, company cars.
Further detailed information regarding P11D forms and calculating company car tax can be found here.
If you are an employer who provides a company car benefit to your employees you must report the car or fuel costs to HMRC. All employers are responsible for paying a tax on company vehicles if these benefits are provided as part of a salary sacrifice arrangement.
A salary sacrifice arrangement is an agreement between a company and employee to reduce an employee's entitlement to cash pay in return for a non-cash benefit, like a company car.
Companies need to report to HMRC if they:
- Provide employees with company cars used for private journeys
- Provide or pay for fuel for private journeys
Things to keep in mind regarding tax on company vehicles: company cars face variable tax rates which are based on their CO2 emissions. Company vans and light commercial vehicles are categorized into one classification for calculating company car tax.
Download the below UK company car tax rates for 2020/21
The 2021 budget announcement included good news for fleets: a new super-deduction company car tax relief for fleets investing in new vans and trucks. New and unused heavy and commercial vehicles can qualify with no ceiling on how much can be claimed, although company cars are excluded.
Qualifying purchases can claim a 130% super-deduction capital allowance, or a 50% first-year allowance.
This is a great opportunity for fleets to switch to greener vehicles and save money on company car tax. As Clean Air Zones come into effect around the UK, the timing is perfect to upgrade your vehicles and transition to a low-emissions fleet.
To be 100% sure, read our guide on how to inform the HMRC about your company and pool cars.
Follow the link below and download now.
The P46 car form is a document used by employers to give an employee’s company car details to the Her Majesty Revenue and Customs(HMRC).
Usually, the P46 car form filing process is taken out manually on 5th January, April, July, and October. Recently, electronic submission of the P46 car form has been adopted, easing the process. The HRMC has recently adopted electronic submission of the P46 car form. You can also hand in the P46 car form manually on select dates.
There are conditions where as an employer, you are obligated to supply the HMRC with a P46 car form. They include:
- If you start providing company cars to your employees, you can send a P46 car form to the HMRC
- When you give an extra car to an employee, submit the P46 car form to the regulator
- When you cease providing a company car, inform the HMRC through a P46 car form
- If a new employee cannot provide you with a P45 form from the previous workplace they have to fill a P46 car form which you will hand over to the HMRC
- If you are an employee and starting your second job while still under employment by your current employer, you need to fill a P46 car form.
- If you are starting a job for the first time, you may fill a P46 car form.
The details you will need while filling the P46 car form are as follows:
- Tax code details
- Financial information details like jobseeker allowance and student loan repayment
- Basic personal details
The amount of company car tax paid is affected by the income tax the employee falls under:
- Those earning between £12,501 and £50,000 annually will pay a (20%) income tax in the current financial year.
- Those earning between £50,001 and £150,000 fall under the (40%) tax rate.
- BiK bands are adjusted annually.
- Diesel cars pay an extra surcharge after a 4% company car tax increase was slapped on their BiK band
Download the company car tax rates for 2020/21 below:
In some cases a company does not have to pay for the car or fuel they provide. To be exempt from paying a company car tax your employees must use the car or fuel in one of the following ways:
Situations in which employers do not need to tell HMRC or pay a tax on company cars:
- Pool Cars: If the company car is a pool car, meaning a vehicle which is used by more than one employee for business purposes and is normally kept on the business premises.
- Business Use: Cars available for business journeys only.
- Adapted For Mobility: Vehicles which have been adapted for use by employees with a disability, so long as the only private use of the vehicle is for journeys between home and work.
- Emergency Vehicles: Emergency vehicles that are used only by on-call employees of the police, fire and rescue, ambulance or paramedic services are also exempt.
- Privately Owned Cars: Cars that are privately owned a company is not responsible to pay taxes for.
- Fuel: Fuel that employees pay for themselves is exempt from the company car tax calculations.
Situations in which employers are exempt from taxes on company vehicles such as vans:
- Pool Vans: Employers do not need to report the van if it is available for use and used by more than one employee, normally kept on the business premises, and used for business purposes with limited private use.
- Business Use Only: Vans are permitted to be used for limited private use such as driving the vehicle home to allow for an early start the following morning or for an insignificant detour to get coffee on the way to a job.
When it comes time to pay the employee tax on company cars here is information on what businesses need to report and pay.
Employers must keep records of all employees’ expenses and benefits, including:
- The date and details of every expense or benefit provided
- Any information necessary to determine the amounts indicated on the end-of-year forms
- Any payment the employee contributed to an expense or benefit
For Company Cars
Employers must send a P46 (Car) form to HMRC if they provide company cars to their employees, stop providing a company car, or provide an employee with an additional car.
For Company Vans and Light Vehicles
If a company supplies a van that is not exempt they must report the cost of the vehicle on form P11D and pay Class 1A National Insurance on the value of the benefit.
Sending and Submitting the Forms
To submit the necessary information to HMRC employers can complete the form online and then mail the printed and completed document to the address on the form. Or employers can use HMRC’s PAYE Online service. Alternatively, businesses can use an HMRC approved payroll software.
There are different deadlines for when a business must report to HMRC depending on when they provided, changed or stopped providing a company car.
|When the change takes place||When you need to tell the HMRC|
If an employee or their family uses a company vehicle for personal use they are required to pay a tax on company car usage. This company car tax is referred to as a BIK tax, or Benefit in Kind tax. HMRC views any private usage of a company car as a taxable benefit. This includes using the vehicle for commuting to work.
The company car tax calculations are dependent on the employee’s earnings, the cost of the car, and the amount of carbon dioxide emissions (CO2) comes out of the vehicle's exhaust.
Some employees are exempt from paying BIK taxes on their company vehicles. If you drive a company car, as opposed to a company van, you may be exempt from company car tax if you are:
- A Partner of a Partnership or a Limited Liability Partnership (LLP)
- A proprietor of your own business
- Driving a company car that is adapted for mobility and disability reasons
- Driving a company car used purely for business reasons in which the car is usually left on the business property overnight and on weekends
- Driving a company car that is a pool car
Most of the rules are the company car tax rules are the same for vans as they are for cars. However, there are a few more exemptions for vans. As with a company car, employees do not have to pay a tax on company vans if the vehicle is used only for business purposes or is a pool van.
According to HMRC a business journey is considered a trip that is made as part of work, like traveling between appointments or a trip to a temporary workplace. HMRC says that a van can be used for private journeys by the employee if the trip is insignificant. Employees will not be required to calculate company car tax on trips that include stopping to purchase a coffee or newspaper on the way to a job.
Employers are required to provide their employees with a copy of the P11D form by July 6, following the end of the tax year. Employees are suggested to to keep those forms as they may be needed to complete a tax return or to claim a repayment of tax.
The amount of tax on company vehicles an employee pay depends on:
- The employees income tax band
- The vehicle’s CO2 emissions
- List price of the vehicle, cost of delivery, VAT and any optional extras
- What type of fuel the vehicle takes
- How often the employee uses the vehicle
How it works:
The company car tax is calculated by determining the P11D value. This value is the sum of the vehicle’s list price and extra costs (excluding road tax or first-year registration fees) multiplied by the BiK band percentage. The amount paid is that sum multiplied by the employees income tax band 20%, 40% or 45% for residents of England and Wales. Or multiplied by 19%, 20%, 21%, 41% or 46% for residents of Scotland.
Instead of a company car, some employees are given a company car allowance. A company car allowance is a cash allowance that is added to the annual salary of the employee.
This allowance allows the employee to buy or lease a vehicle themselves. Company car allowances are not subjected to company car taxes. Instead the money is taxed at the normal income tax rate.
In addition to the company car some businesses will cover the cost of fuel as well. This fuel benefit is taxed separately from the company car tax. Further information on company car tax explained and how to calculate fuel tax can be found on the HMRC government website.
Calculating company car tax on electric cars differs from the company car tax for non-EV vehicles. In the 2020/21 tax year, all electric cars are set at a 0% BiK tax rate, with bills rising to just 2% for the 2022/23 tax year. The low company car tax on electric cars is one of the main incentives for investing in electric company cars. You can find more information on company car tax on electric cars here.
What is a company car tax code?
This is the tax imposed on any company, on employees. However, they are different types of taxes in different regions. This type of tax is cut depending on the employees' tax bracket, which is then multiplied by the P11D value and lastly multiplied by the benefit in kind.
What does the car tax code look like?
It contains a tax code which the company gives its employees and a cut from one’s personal earnings, which is also referred to by HMRC as a benefit in kind, depending on the salary an employee gets. There is a group rate off that shows the cut you will get from your salary; the higher your salary is, the higher the tax charged.
Why is the company car tax code important?
The car tax code is very important as the company's value and benefits determine the tax. It helps in estimating the tax expected to be cut to save on financial use.