How does company car tax work?

January 21, 2022 by

Company car tax is something you’ll need to pay if you’re using a company car privately, including commuting.

A company car is considered a perk of a job for tax purposes, so is subject to a ‘Benefit-in-Kind’ (BiK) rate.

But how does company car tax work, and how much will you need to pay? This guide explains.

Company car tax explained

The amount of company car tax you’ll pay will depend on the value of the car.

If you only use the car part-time or pay towards its cost, the amount of tax you pay will be reduced.

You’ll be charged according to a BiK (Benefit in Kind) rate, which represents the percentage of a car’s value that is taxable.

This percentage will be calculated based on a P11D form provided to the HMRC by your employer. This takes into account the car’s list price inclusive of VAT, but not the first year of VED or registration fees.

For example, if a car with a £20,000 P11D value falls under a 20% BiK rate, the taxable amount will be £20,000 x 20%. This would equal £4,000 per annum.

To work out how much you’ll then pay, you need to know your income tax band. If you pay 20% in this example, you’d pay £4,000 x 20% for the tax year, equalling £800 per annum.

Company car tax bands

BiK rates often change annually, though the Government does publish changes well in advance.

The higher the CO2 emissions of a car, the higher its BiK will be. Equally, cars with an electric range will have a lower BiK. The greater their range, the lower their BiK rate will be, too.

Cars registered from April 6 2020 (financial year 2021-22)
CO2 emissions (g/km) Electric range (miles) BiK rate (%)
0 1
1-50 130+ 2
1-50 70-129 5
1-50 40-69 8
1-50 30-39 12
1-50 Less than 30 14
51-54 15
55-59 16
60-64 17
65-69 18
70-74 19
75-79 20
80-84 21
85-89 22
90-94 23
95-99 24
100-104 25
105-109 26
110-114 27
115-119 28
120-124 29
125-129 30
130-134 31
135-139 32
140-144 33
145-149 34
150-154 35
155-159 36
160-164 37
165-169 37
170+ 37

 

Internal combustion cars registered from between 6 April 2017 to 5 April 2020 (financial year 2021-22)
CO2 emissions (g/km) BiK rate (%)
0 16
1-50 16
51-75 19
76-94 22
95-99 23
100-104 24
105-109 25
110-114 26
115-119 27
120-24 28
125-129 29
130-134 30
135-139 31
140-144 32
145-149 33
150-154 34
155-159 35
160-164 36
165+ 37

What do different company car tax terms mean?

  • P11D value – this is the total value of the car stated by your employer
  • BiK – Benefit-in-Kind, a taxable perk outside of your normal salary
  • CO2 – carbon dioxide emissions produced by your car
  • VED – Vehicle Excise Duty, more commonly known as car tax

FAQs: Company car tax

Do hybrid and electric cars keep company car tax down?

The lower a car’s CO2 emissions, the less you’ll pay in company car tax. As a result, hybrid and electric cars are among the cheapest.

Has the cost of company car tax increased?

Company car BiK rates have marginally increased for some bands for the 2021-22 financial year.

Company car tax rates do change from time to time, though the Government publishes this info well in advance.

Can I claim tax relief on my company car’s mileage?

You can claim tax relief on the fuel or electricity used to power your car, as well as road tax, MOTs and any necessary repairs.