The rules governing company car tax have seen some significant changes in recent times, and with further measures in the pipeline, we consider the latest situation.
The current rules
Employees and directors pay tax on the provision of a company car, as well as on the provision of fuel for private mileage. Employers pay Class 1A national insurance contributions (NICs) at 13.8% on the same amount.
Company cars are taxed as a benefit-in-kind (BiK) by multiplying the list price of the car, including most accessories, by the ‘appropriate percentage’. This percentage is set by reference to the car’s fuel type and level of carbon dioxide (CO2) emissions.
The taxable car fuel benefit is calculated by applying the appropriate percentage to the car fuel benefit charge multiplier, which is £22,600 for 2017/18. Reductions may apply where the employee makes a contribution towards the cost of the car, and where an employee reimburses the employer for all private fuel.
As the table below shows, a reduced rate of 9% currently applies for vehicles emitting no more than 50 g/km of CO2, although from April 2018 the BiK rates will begin to increase significantly.
|CO2 (g/km)||Appropriate percentage* %|
|For every additional 5g thereafter add 1% until the maximum percentage of 37% is reached.|
*An additional supplement of 3% of the list price applies to diesel cars, up to the maximum cap of 37%. **Emissions are rounded down to nearest 5 g/km for values above 95 g/km.
Further changes from April 2020
For 2020/21 further changes are set to come into effect, with the introduction of a new range of BiK bands with appropriate percentages ranging from 2%-19% for ultra-low emission vehicles (ULEVs) emitting less than 75 g/km of CO2.
Cars with emissions over this amount would see the appropriate percentage set at the lesser of:
- 20%, plus 1% for each 5 g/km by which emissions exceed 75 g/km, and
Those looking to purchase a new vehicle should take these changes into account.
Re-evaluating the company car
The company car continues to be a worthwhile benefit for many, despite the rising tax obligations. When considering your company car options, there are a number of factors to take into account, including the new Optional Remuneration Arrangements (the replacement for salary sacrifice schemes), your average business mileage, and the forthcoming increases in BiK rates. It may even be worth considering a company van or ULEV.
We can advise on your business motoring needs. Please contact us for further assistance.