Company Car Tax & Tax Bands Guide
Company Car Tax Explained
Company cars are considered a benefit on top of a standard salary. Therefore the Government, specifically HM Treasury, puts a tax on company cars.
The company car tax’s official name is the Benefit-in-Kind (BiK) tax. Essentially it means that you are taxed fairly for a benefit that falls outside of what your income tax and National Insurance contributions cover.
Whether you operate a company car scheme or give out company car allowances to employees, the tax applies. It’s important to know how much BiK tax you will pay.
Generally speaking the way the tax works is quite similar to other taxes. The BiK tax owed is taken from employee wages via Pay As You Earn (PAYE), just like income tax.
How much you pay depends on several factors. Costs are reduced for example if an employee only has the car part-time, or they pay something towards its cost. Driving a hybrid or electric car can also reduce BiK tax. That’s because BiK value can be based on the vehicle’s zero emission mileage, which is based on a car’s electric range.
From 6th April 2020, car emissions are now gauged using the world harmonised light vehicle test procedure (WLTP). Compared to the previous NEDC tests, WLTP simulates stricter, more realistic driving conditions to assess how much CO2 a car emits.
The WLTP test will likely increase the amount of CO2 emissions measured in petrol and diesel cars, so we could see fairly significant tax rises. To try and offset this and prevent drivers being unfairly penalised there will be two BiK tax rates – one for NEDC tested cars and another for WLTP tested cars. This will be the case until January 2021.
A guide to Company Car tax and VED
In this guide, we take a look at the implications on car choice and provide all the key information you need at a glance to help you choose the most suitable vehicle for you.
What affects my company car tax?
Vehicle’s CO2 emissions
One of the biggest factors affecting how much you pay is CO2 emissions. The more your car emits, the more tax you pay.
Make and model of car
The kind of car you drive affects which tax band it falls into, for example SUVs with higher emissions fall into a higher band.
List price
The value of the car affects the tax you’ll pay. The list price should be submitted when you fill in a P11D to get an accurate cost.
Fuel type
Prices can vary depending on whether you use petrol, diesel or electric/hybrid power to get around.
How often the vehicle is used
How often you use your car can affect your tax rate, there are mileage allowances that can help you save money.
Company Car Tax and Salary Sacrifice
Helping you make a tax-efficient choice
We’ve outlined everything you need to know about company car tax and explored why electric vehicles can be a rewarding choice for both drivers and fleet decision makers – especially through salary sacrifice.
Company Car Tax Changes
January 2020
RDE2 is enforced and is mandatory for all new models on sale. It reduces the target level of NOx to 1.5 x the target.
April 2020
From 1st April, VED will be calculated on WLTP CO2 figures rather than NEDC derived figures, with many models seeing a significant increase in CO2.
April 2020
From 6th April, BiK will be calculated on WLTP CO2 figures rather than NEDC derived, with many models seeing an increase in CO2. This will only affect vehicles registered on or after 6th April. It will not be retrospectively applied to vehicles registered before this date. This means for a period of time there will be 2 sets of BiK rates used - one for vehicles registered before 6th April (based on NEDC derived) and one for vehicles registered after 6th April (based on WLTP).
January 2021
RDE2 becomes mandatory for all new registrations.
How much tax will I pay on a company car?
To quickly and easily find out how much tax you might pay, use our helpful tax calculator.
Company Car Tax Bands
Click below to view what tax rates you need to pay on your new Škoda.
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Company car tax terms
The P11D is a form where employers let HMRC know how much each of their employees’ cars are worth. The form helps HMRC tax your company cars correctly. The lower the P11D price is, the lower the amount of tax paid, so it’s an important consideration when selecting your fleet vehicles.
The P11D price is dictated by the list price of the car. Once you know this you can figure out how much tax will be paid on the car by multiplying it by income tax bracket and the car’s BiK tax band.
Knowing what tax band a car is in can make a huge different to how much tax you pay. Tax bands are worked out by using a car’s CO2 emissions. The higher the band, the more expensive a car’s tax will be.