Company Car Tax Guide

company car taxCompany cars are considered a Benefit In Kind (BIK) and, therefore, they are subject to tax from HM Revenue & Customs (HMRC). A car is not deemed a necessity so it’s viewed as an additional perk that you get on top of your annual salary.


Company car tax can be a bit perplexing to those who are new to the system. Normal VED car tax is calculated by merely taking into account CO2 emissions. Whilst this is still one of the factors taken into consideration with company car tax, there are other influencing factors. This includes when the car is used, how the car is paid for, fuel type, optional equipment and the car’s list price.



So, let’s take a further look at how these factors influence the amount of tax you pay, starting with CO2 emissions. Electric vehicles are currently exempt from tax, however in a couple of months’ time this will change. As of April 2015 there will be a five per cent tax rate on this type of car, i.e. this takes effect for the 2015/16 financial year. At present, the highest polluting cars are taxed at 35 per cent, whilst the lowest polluters have a five per cent BIK rate. These percentages change every year.


Another influencing factor is whether your car runs on petrol or diesel. Diesel vehicles emit more harmful particulates. Because of this, diesel models with similar emissions will have a three per cent surcharge over petrol. Therefore, when choosing between petrol and diesel you need to decide whether you cover enough miles to make it worthwhile going for a diesel vehicle despite the three per cent surcharge.


Aside from this, your salary plays a huge role when it comes to the amount of company car tax you pay. What income tax bracket do you fall into? If you are in the forty per cent bracket, you’ll pay forty per cent on your car’s taxable P11D value for example, whilst those in the twenty per cent income tax bracket pay twenty per cent of the taxable P11D value.

tax on company car

Now you know about the factors that influence your car’s tax rate, but how do you actually calculate the amount. This is the calculation you need to follow…


1)      Start with the P11D value of your company vehicle

2)      To get your BIK amount you need to multiply the P11D value by the vehicle’s company car tax rate – which will be determined based on the amount of CO2 emissions. So, if you’re in the lowest polluting bracket, you’ll multiply the P11D by five per cent.

3)      To get the amount of tax you pay you will then need to multiply the BIK value by your personal tax rate, e.g. 40 per cent.



It’s certainly worth doing considerable research before buying company vehicles, as this could save you a significant amount of money. Some good options in terms of low tax rates include the likes of Nissan Note 1.2 DiG-S Acenta, Skoda Citigo 1.0 75 Elegance 5dr, Vauxhall Insignia 2.0 CDTI 140 ecoFLEX Design, BMW 320d ED Business Touring and Citroen C4 Picasso 1.6 e-HDi VTR+.