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Tax and the company car

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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 4% surcharge on diesel powered cars.

Cars emitting CO2 at a specified level are taxed on rates varying from 13% to 37% of the list price. Emissions for non-diesel driven cars from 0 to 50g/km (this band includes electric cars) are taxed at 13%, from 51-74g/km are taxed at 16% and from 75-79g/km, at 19% of list price.

From 6 April 2018, drivers must add 4% (increased from 3% at Autumn Budget 2017) to their appropriate percentage if the car is propelled solely by diesel (up to a maximum of 37%). Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt from the diesel supplement.

Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 37% of the car's price. These figures apply to all company cars, including second cars.

CO2 emission information

For all cars first registered from November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5).

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 CO- based car benefit percentage applied to a standard value of £23,400.

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!

HMRC 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

Current mileage rates

1 June 2018

These mileage rates officially apply as of 1 June 2018

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 22p 14p

 

Engine size Diesel
1600cc or smaller 10p
1601cc to 2000cc 11p
Over 2000cc 13p

1 March 2018

These mileage rates officially apply as of 1 March 2018

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 8p
Over 2000cc 22p 13p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p

1 December 2017

These mileage rates officially apply as of 1 December 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 21p 14p

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p


1 September 2017

These mileage rates officially apply as of 1 September 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 13p 8p
Over 2000cc 21p 13p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 12p


For employees using their own transport

The approved maximum tax and national insurance free mileage allowances for employees using their own transport for business are as follows:

Flat rate First 10,000 Miles Miles over 10,000
Car or van 45p 25p
Motorcycle 24p 24p
Bicycle 20p 20p

 

 

 

 

 

 

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 2018/19 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
£
£13,000 103 546 983 624 1123
£18,000 147 1080 1404 1188 1544
£25,000 220 1850 1732 2000 1872

Higher rate liability example

List Price CO2 emission g/km Tax Rate 40%
Petrol Diesel
Car
£
Fuel
£
Car
£
Fuel
£
£13,000 103 1092 1966 1248 2246
£18,000 147 2160 2808 2376 3089
£30,000 220 4440 3463 4800 3744

Additional rate liability example (excluding Scotland where the additional rate is 46%)

List Price CO2 emission g/km Tax Rate 45%
Petrol Diesel
Car
£
Fuel
£
Car
£
Fuel
£
£13,000 103 1229 2211 1404 2527
£18,000 147 2430 3159 2673 3475
£40,000 220 6660 3896 7200 4212

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.

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.

Note that the lower rate for more than 10,000 business miles only applies to income tax. The national insurance rate remains at 45p for any number of miles.

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 (now possible through RTI payrolling).

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 £3,350 (with no reduction for older vans) plus a further £633 of taxable benefit if fuel is provided by the employer for private travel. Electric vans are taxed at 40% of the van scale rate (i.e. £1,340).

The tax payable on the use of a company van ranges from £268 to £1,792.35 a year, and the employer's class1A NICs payable ranges from £87.35 to £549.65 a year.

Use our calculator to check your van benefit

Tax-saving checklist

  • Keep adequate records of business mileage.
  • Always check your tax code to see that the correct benefit is being applied.
  • 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.

Company cars - beyond 2018

  • The taxable benefits tables have also been published for the tax year, 2019/20 to 2020/21.
  • These increase the percentages in 2019/20 for each band of emissions by 2% and 3% respectively. The maximum benefit rate remains at 37%.
  • From 6 April 2020, cars propelled wholly by electricity will reduce to a 2% benefit in kind. Lower rates will also apply to hybrid cars with emissions of between 1 and 50 g/km, based on the range of the electric motor.

Taxable benefit for 2018/19

CO2 emissions (g/km)* Petrol Diesel
0 to 50 13% 16%
51 to 75 16% 19%
76 to 94 19% 22%
95 to 99 20% 23%
100 to 104 21% 24%
105 to 109 22% 25%
110 to 114 23% 26%
115 to 119 24% 27%
120 to 124 25% 28%
125 to 129 26% 29%
130 to 134 27% 30%
135 to 139 28% 31%
140 to 144 29% 32%
145 to 149 30% 33%
150 to 154 31% 34%
155 to 159 32% 35%
160 to 164 33% 36%
165 to 169 34% 37%
170 to 174 35% 37%
175 to 179 36% 37%
180 and over 37% 37%

*The exact CO2 figure is rounded down to the nearest 5g/km.

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