Company Car Tax 101

What would go through your head if your employer gave you a company car? Perhaps something along the lines of ‘Great! A free car!’? Maybe you’d hunt out the most expensive, swanky vehicle available to you?

Hold your horses. First things first, slow down and take some time to swat up on company car tax, which, we would guess, isn’t the first thing you might think of doing. Thankfully, we have gathered all the key, initial information you need to know before choosing a company car, because let’s be honest, who wants to ruin the bonus of a company car with a massive tax sum?! So, let’s get you wised up to all the jargon and considerations before deciding if a company car is really a perk, or a potential drain on your income once the taxman gets wind of your ‘benefit in kind’.

What is Company Car Tax (CCT)?

CCT comes into play if your personal car is provided by your employer as a perk of the job. This perk is also known as a ‘benefit in kind’ or BIK, which are benefits an employee receives alongside their salary. But, lo and behold, company cars aren’t freebies. HMRC view company cars as being a taxable perk, which means they are seen as an addition to your income due to its provision on top of your annual wage. Therefore, as with all income, you have to pay tax on it.

What affects a car’s CCT rate?

The amount of CCT does vary dependent on which car you choose:

  • The car’s amount of CO2 emission will affect its tax level – currently, the least polluting cars (electric) have a 5% BIK rate, and those which produce the most pollution have a 35% BIK rate
  • Diesel cars have a 3% higher charge compared to petrol cars

How much CCT will I be charged?

The grand total of CCT depends on your annual salary, e.g. if you are in the 30% income tax bracket, you would pay 30% of the company car’s P11D value (this is the total value of the car, taking into account RRP, VAT and any inbuilt extras such as sat navs).

How can I work out the amount of CCT?

The easiest way to figure out the total sum is to head onto the HMRC’s Company Car and Car Fuel Benefit Calculator. Here is an example of how much CCT you could pay:

  • Take the company car’s P11D cost, e.g. £20,000
  • The P11D value is then multiplied by the CO2 emissions of the car, e.g. £20,000 x 20% = £4,000. This is your benefit in kind amount.
  • Next, multiply, the BIK sum by your personal tax rate, e.g. £4,000 x 50% = £2,000. This is the amount of CCT you would have to pay per year.

Do I have any other options?

If you fancy exploring different routes having seen how much the tax will be, you could opt out of having a company car, and instead have the amount which your employer would pay to lease the car added onto your annual salary. This would, of course, be subject to your rate of personal income tax, but choosing cash over company car means you could buy a car yourself. This provides you with a personal asset and gives you a wider range of vehicles to choose from as employers are likely to have a limited number of choices.

It can be overwhelming trying to decide whether to go down the company car route once you have seen how much tax you are facing. However, company cars can be a great asset for some people. If you need help delving further into the company car tax world or figuring out if having a company car is the best option, don’t hesitate to be in touch with the Fabulous Group. We can provide you all the facts so you can make an informed decision before heading off to the garages to test drive your dream wheels.