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Tax and the company car

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The system for taxing those who use company cars has remained fundamentally unchanged for some years, save for stepped changes in the emissions thresholds. 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 3% surcharge on diesel powered cars.

The taxable value of the benefit continues to be up to a maximum of 35% of the list price of the car when first registered. The list price includes car tax (if applicable), Value Added Tax and delivery charges, and is subject to an upper limit of £80,000 until 2011. From April 2011 there will be no limit. The list price of accessories must be included whether fitted when new or subsequently.

Cars emitting CO2 at a specified level are taxed on 15% of the list price. This is the usual minimum charge and will apply to emission levels of between 121g/km and 134g/km. In 2010 Finance Bill there is no benefit where the car or van concerned cannot produce C02. Emissions from 1 to 75 g/km are taxed at 5% and from 76-120g/km, at 10% of list price.

Cars running solely on diesel fuel are subject to a 3% supplement. Special rules apply to cars running on electricity, electricity and petrol, gas or petrol and gas, which are generally seen as more environmentally friendly.

Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 35% of the car's price. The detailed figures are shown in the Appendix. These figures apply to all company cars, including second cars.

Cleaner diesels

When the current system was introduced, it included a discount of 3% for diesel powered cars compliant with the Euro IV emissions standards to encourage earlier take-up of 'cleaner diesels' and effectively cancelling the 3% surcharge on all diesel company cars.

CO2 emission information

For all cars first registered from at least November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5). Under an agreement with HM Revenue & Customs, the Society of Motor Manufacturers and Traders (SMMT) is providing a CO2 emissions enquiry service on their website at www.smmt.co.uk for cars first registered from January 1998.

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 CO2-based car benefit percentage applied to a standard value of £18,000.

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 continue to reduce its 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!

HM Revenue & Customs has published baseline rates which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. 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, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.

Current mileage rates

1 June 2010

These mileage rates came into force officially on 1 June 2010.

Baseline fuel mileage rates
  Rates per mile
Engine Capacity Petrol Diesel LPG
Up to 1400cc 12p 11p 8p
1401 - 2000cc 15p 11p 10p
Over 2000cc 21p 16p 14p

1 December 2009

The following mileage rates came into force officially on 1 December 2009.

Baseline fuel mileage rates
  Rates per mile
Engine Capacity Petrol Diesel LPG
Up to 1400cc 11p 11p 7p
1401 - 2000cc 14p 11p 8p
Over 2000cc 20p 14p 12p

HM Revenue & Customs has announced that rates will now be reviewed bi-annually and any changes will take effect on 1 January and 1 June. This area of our site will be updated around the beginning of June and December about one month before any change takes effect. If however there are significant fuel cost fluctuations, then rates may be changed accordingly.

Tax payable

These standard charges are subject to income tax at basic or higher 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 him to run his own car out of his taxed income. These are examples of the 2010/11 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
£
£13,000 165 572 792 650 900
£18,000 200 1044 1044 1152 1152
£25,000 221 1650 1188 1750 1260

Higher rate liability example

List Price CO2 emission g/km Tax Rate 40%
Petrol Diesel
Car
£		 Fuel
£		 Car
£		 Fuel
£
£13,000 165 1144 1584 1300 1800
£18,000 200 2088 2088 2304 2304
£25,000 240 3500 2520 3500 2520

Additional rate liability example

List Price CO2 emission g/km Tax Rate 50%
Petrol Diesel
Car
£		 Fuel
£		 Car
£		 Fuel
£
£13,000 165 1430 1980 1625 2250
£18,000 200 2610 2610 2880 2880
£25,000 240 4375 3150 4375 3150

Use our calculator to check your car benefit

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.

  • "Lower Paid" Employees

The provision of a car for an employee (NOT a director) who is paid at a rate below £8,500 per year (including the value of benefits) does NOT attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.

  • Special Consideration for Sole Traders

If your spouse is employed in your business (but not as a partner), it can be very tax efficient to provide them with a car, as long as they earn well below £8,500. The use of the car can be tax-free in their hands, and the business will get full tax relief on all the expenses connected with the car, provided you can demonstrate the car is necessary for business purposes.

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 40p 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.

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.

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 £3,000 (with no reduction for older vans) plus a further £550 of taxable benefit if fuel is provided by the employer for private travel.

The tax payable on the use of a company van ranges from £600 up to £1,775 p.a., and the employer's Class1A NIC payable ranges from £384 to £454.40 p.a.

Use our calculator to check your van benefit

Tax saving check list

  • Keep adequate records of business mileage.
  • Always check your tax code to see that the correct benefit is being applied.
  • Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
  • 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.
  • If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.
  • Tax - free parking is a must!

Company cars - beyond 2011

2011/12

From April 2011, a number of changes will be introduced to the company car tax regime.

  • The maximum list price of £80,000 will be abolished, so that employees with cars costing in excess of this sum will be taxed on the full list price from 2011/12.
  • The lowest emissions on the Table will once again be reduced by 5g/km to 125g.km providing a further increase for most drivers.
  • The discounts for alternative fuels will be abolished, and a single alternative rate of 9% introduced for drivers of electrically propelled cars. Drivers of cars running on bi-fuel, gas, E85 or hybrid cars will no longer have a reduction in benefit and will be taxed based solely on the emissions of their car.

2010/11 taxable benefits table

CO2 in g/km* Taxable % CO2 in g/km* Taxable %
Petrol Diesel Petrol Diesel
1 to 75 5% 8% 180 to 184 25% 28%
76 to 120 10% 13% 185 to 189 26% 29%
121 to 134 15% 18% 190 to 194 27% 30%
135 to 139 16% 19% 195 to 199 28% 31%
140 to 144 17% 20% 200 to 204 29% 32%
145 to 149 18% 21% 205 to 209 30% 33%
150 to 154 19% 22% 210 to 214 31% 34%
155 to 159 20% 23% 215 to 219 32% 35%
160 to 164 21% 24% 220 to 224 33% 35%
165 to 169 22% 25% 225 to 229 34% 35%
170 to 174 23% 26% 230 and over 35% 35%
175 to 179 24% 27%    

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