Tax and the company car

• CO₂ emission information
• Fuel scale charges
• Employee contributions
• Current mileage rates
• Basic rate liability example
• Higher rate liability example
• Additional rate example
• Tax free benefits
• Business use of an employee's own car
• Passenger payments
• 2011/12 taxable benefits table
• Case study
• Two rules of thumb
• Pool cars
• Company vans
• Tax saving check list

Check out our fuel cost calculator

The system for taxing those who use company cars has seen annual incremental increases in the cost of benefits, while maintaining the basic approach to taxing those who use a company owned vehicle. The basis of the charge is to tax a figure calculated by multiplying the car's list price by an emission-based percentage, with a 3% surcharge on diesel powered cars.

The taxable value of the benefit continues to be up to a maximum of 35% of the list price of the car when first registered. The list price includes the full cost of the car, car tax (if applicable), Value Added Tax and delivery charges. From April 2011 there is no cap on the list price of the car for calculating the benefit (previously an £80,000 limit applied). The list price of accessories must be included whether fitted when new or subsequently.

Cars emitting CO₂ at a specified level are taxed on rates varying from 5 to 35% of the list price. Emissions for petrol driven cars from 1 to 75 g/km are taxed at 5% and from 76-120g/km, at 10% of list price.

Cars running solely on diesel fuel are subject to a 3% supplement. Special rules apply to cars running on electricity. Employees and directors who are provided with a company car that is propelled solely by electricity will not have to pay tax on the benefit. The relief will apply for five years.

Cars with higher levels of CO₂ emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 35% of the car's price. The detailed figures are shown in our taxable benefits table. These figures apply to all company cars, including second cars.

CO₂ emission information

For all cars first registered from at least November 2000, the definitive CO₂ emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5). Under an agreement with HM Revenue & Customs, the Society of Motor Manufacturers and Traders (SMMT) is providing a CO₂ emissions enquiry service on their website at www.smmt.co.uk for cars first registered from January 1998.

Older cars

Cars first registered before January 1998, for which there are no reliable CO₂ emissions data, are taxed according to their engine size, as follows:

Engine size (cc)	Percentage of car's price charged to tax
0 - 1400	15%
1401 - 2000	22%
2001 and more	32%

Fuel scale charges

Where the employer pays for any fuel used privately by the employee, there is an additional scale charge based on the CO₂-based car benefit percentage applied to a standard value of £18,800.

Employee contributions

Where the employee is required, as a condition of the car being made available, to pay for the private use of a car, the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will reduce its list price for tax purposes.

By contrast it is "all or nothing" for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel!

HM Revenue & Customs has published advisory fuel only rates which will be accepted either for employers reimbursing employees for the cost of fuel for business mileage, or for employees reimbursing employers for the cost of fuel for private mileage in a company car. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle. In this instance a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.

Current mileage rates

Tax payable

These standard charges are subject to income tax at the basic, higher or additional rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.

For the benefit to be attractive, the employee must pay less in extra tax than it would cost them to run their own car out of their taxed income. These are examples of the 2011/12 tax costs to an employee of a company car:

Basic rate liability example

List Price	CO2 emission g/km	Tax Rate 20%
		Petrol		Diesel
		Car £	Fuel £	Car £	Fuel £
£13,000	165	598	865	676	978
£18,000	200	1080	1128	1188	1241
£25,000	240	1750	1316	1750	1316

Higher rate liability example

List Price	CO2 emission g/km	Tax Rate 40%
		Petrol		Diesel
		Car £	Fuel £	Car £	Fuel £
£13,000	165	1196	1730	1352	1955
£18,000	200	2160	2259	2376	2482
£30,000	240	4200	2632	4200	2632

Additional rate liability example

List Price	CO2 emission g/km	Tax Rate 50%
		Petrol		Diesel
		Car £	Fuel £	Car £	Fuel £
£13,000	165	1495	2162	1690	2444
£18,000	200	2700	2820	2970	3102
£40,000	240	7000	3290	7000	3290

Use our calculator to check your car benefit

Tax free benefits

• Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

• Pool Cars

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others.

Please note: A pool car must not normally be kept overnight at or near an employee's home.

• "Lower Paid" Employees

The provision of a car for an employee (NOT a director) who is paid at a rate below £8,500 per year (including the value of benefits) does NOT attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.

• Special Consideration for Sole Traders

If your spouse is employed in your business (but not as a partner), it can be very tax efficient to provide them with a car, as long as they earn well below £8,500. The use of the car can be tax-free in their hands, and the business will get full tax relief on all the expenses connected with the car, provided you can demonstrate the car is necessary for business purposes.

Business use of an employee's own car

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own cars.

A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:

Cars and vans
On the first 10,000 miles in the tax year	45p per mile
On each additional mile above this	25p per mile
Motor cycles	24p per mile
Bicycles	20p per mile

It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D.

Passenger payments

When an employee travelling on business carries fellow employees as passengers he may be reimbursed a further 5p per passenger tax free provided the journey is a business journey in respect of the passengers. No claim can be made if the employer does not make passenger payments.

Company vans

The taxable benefit for the unrestricted use of company vans is £3,000 (with no reduction for older vans) plus a further £550 of taxable benefit if fuel is provided by the employer for private travel.

The tax payable on the use of a company van ranges from £600 up to £1,775 p.a., and the employer's Class1A NIC payable ranges from £384 to £454.40 p.a.

Use our calculator to check your van benefit

Tax saving check list

• Keep adequate records of business mileage.
• Always check your tax code to see that the correct benefit is being applied.
• Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
• If you have low private mileage, you may be better off if you pay for all your own private fuel.
• If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
• Encourage your employer to apply for a P11D dispensation.
• If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.
• Tax - free parking is a must!

Company cars - beyond 2011

2011/12

From April 2011, a number of changes will be introduced to the company car tax regime.

• The maximum list price of £80,000 will be abolished, so that employees with cars costing in excess of this sum will be taxed on the full list price from 2011/12.
• The lowest emissions on the Table will once again be reduced by 5g/km to 125g.km providing a further increase for most drivers.
• The discounts for alternative fuels will be abolished, and a single alternative rate of 9% introduced for drivers of electrically propelled cars. Drivers of cars running on bi-fuel, gas, E85 or hybrid cars will no longer have a reduction in benefit and will be taxed based solely on the emissions of their car.

2011/12 taxable benefits table

CO2 in g/km*	Taxable %		CO2 in g/km*	Taxable %
	Petrol	Diesel		Petrol	Diesel
1 to 75	5%	8%	175 to 179	25%	28%
76 to 120	10%	13%	180 to 184	26%	29%
121 to 129	15%	18%	185 to 189	27%	30%
130 to 134	16%	19%	190 to 194	28%	31%
135 to 139	17%	20%	195 to 199	29%	32%
140 to 144	18%	21%	200 to 204	30%	33%
145 to 149	19%	22%	205 to 209	31%	34%
150 to 154	20%	23%	210 to 214	32%	35%
155 to 159	21%	24%	215 to 219	33%	35%
160 to 164	22%	25%	220 to 224	34%	35%
165 to 169	23%	26%	225 and over	35%	35%
170 to 174	24%	27%
* The exact CO2 figure is rounded down to the nearest 5g/km