How are company cars taxed? To find out more watch our video or read about it below.

A company car can be a really good benefit to give to your team members. But how is it taxed?

So, you’re travelling a lot with work and your employer has given you a car to use. That’s great isn’t it? Yes it is, as long as you’re aware of the fact that you might have to pay some tax.

You see, using the car for work is OK. But, if you do any personal mileage in the car, HMRC will look at the use of the car as a form of salary…..so they’ll want some tax on the “benefit in kind”. And that’s even if you only drive one mile all year!

What is a benefit in kind?

A benefit in kind tax charge arises when a company car is also available for private use. The amount of private use is irrelevant – the car either is or isn’t available.

The value of the benefit in kind is based on a percentage of the list price of the car. Importantly, this is the list price of the car when it was new. The actual price you paid, or the fact you bought it second hand, will not affect this list price.

The percentage then depends on the CO2 emissions of the car. The percentage is low for an electric car, and high for a fuel guzzler. The range is from seven percent to thirty seven percent.

How am I taxed?

You’ll pay tax on the benefit in kind at your highest rate of tax. So, the tax you pay will be:
The List Price times the CO2 percentage times your Tax Rate

For example a higher rate taxpayer using a company car with a list price of thirty thousand pounds and CO2 emissions of one hundred and twenty grams per kilometre would pay tax at forty percent times thirty thousand pounds times twenty five percent which is the appropriate percentage for the CO2 emissions. Their tax bill would be three thousand pounds for the year.

What happens if I get fuel paid for?

If your employer pays for your fuel, you’ll also be taxed on that.

The fuel benefit is calculated using the same CO2 percentage as the car, applied to the fuel multiplier, which is a standard value for fuel set by HMRC. In the tax year two thousand and eighteen/nineteen, the value is twenty three thousand four hundred pounds. Like the car benefit, the number of private miles you actually drive is irrelevant – it’s all or nothing.

The tax you pay will be:

The Fuel multiplier times the CO2 percentage times Your Tax Rate

For example a higher rate taxpayer using a car with CO2 emissions of one hundred and twenty grams per kilometre who has all their fuel paid for by the company would have tax to pay of two thousand three hundred and forty pounds. Which is twenty three thousand four hundred pounds times twenty five percent times forty percent tax.

So, is it worth it?

Well….it depends. If you have a new company car and do a lot of private miles in it – yes. If your company car is getting on a bit and you only drive a few miles away from work, perhaps not. It comes down to your personal circumstances.

As an example, I was recently speaking to a client who has a company car. The car was bought second hand and, living in London, he hardly uses it for private use. Using the figures in my example, is it worth a tax bill of five thousand three hundred and forty pounds?

In his case, he is now going to have the company car but no private fuel – instead he’ll pay for all fuel and claim a tax-free allowance per mile to cover the work journeys. This ranges from four pence to twenty two pence per mile depending on the fuel type and engine size of the car. He now has to pay for his petrol for personal use….but avoids a two thousand three hundred and forty pounds tax bill, which would cover a lot of petrol!

I hope you found this useful. If you have any questions please get in touch with us at Jon Davies Accountants.