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Company Car Tax Explained

By: Tracy Wilkinson - Updated: 2 Aug 2013 | comments*Discuss
Company Car Tax Explained

There are thousands of company car drivers in the UK, and if you're one of them you'll probably already know that having a company assisted vehicle isn't quite the 'perk' that it used to be. Whether your car is purchased or leased, you'll probably be aware that your choice of car can help to keep your tax costs relatively low. However what you might not know is that you can still make it as economical as possible by working out how company car tax works and how you can tailor it to your best advantage

Up until 2002 company car tax was worked out on business mileage and those who drove the most during the course of their work were the ones to reap the benefits. However in April 2002 the UK government completely changed the system and since then have based company car tax rates on the amount of C02 emissions that the car being taxed emits. The idea behind the revamp was to encourage business motorists to drive the most fuel-efficient cars that they can and to cover less business miles.

The tactic seems to have had an immediate result - in 2003, just 12 months after the introduction of the new tax system, it was reported that:

  • Carbon emissions in company cars fell between 0.15 & 0.2 million tonnes
  • Company car business mileage saw a reduction of between 300-400 million miles

These results saw the government confident that they were on the right road and they have continued in this direction towards a cleaner/greener tax system, which encourages drivers to cover less miles and drive more fuel efficient vehicles.

How is My Company Car Tax Worked Out?

There are three main factors that are used to work out company car tax and these are:
  • The P11D - the car's list price along with any optional extras
  • The employee's income tax band
  • The car's banding, based on its Co2 emissions and sometimes, the type and cost of fuel that it runs on

Things You May Find Useful to Know

  • Anyone with a company car that has emissions of 145g per kilometre or more will be subject to charges based on the 21 carbon dioxide tax bands.
  • If the car you are driving doesn't have a Co2 emissions figure that ends in 0 or 5, then round it down.
  • If you drive a petrol fuelled car, then you won't attract any discounts or pay any extra surcharges.
  • If your diesel car meets stringent Euro IV emission standards then it will incur no discounts or surcharges, but if it doesn't meet Euro IV emissions then the driver will need to pay a 3% surcharge, up to a 35% maximum. To find out more about the Euro 4 standards and whether or not your car meets up, visit www.vcacarfueldata.org.uk.
  • Electric hybrid cars get a 2% discount and can also attract an extra 1% discount for each 20 grammes per kilometre they are below the minimum emission band level. Approved bio-fuel cars also attract this 1% discount.
  • Electric powered cars are taxed at just 9% of the list price.

If you want to know what Co2 emissions a particular car emits, then visit www.smmt.co.uk, the official website of the Society of Motor Manufacturers and Traders.

Fuel Costs

If your company pays for your private fuel, then you will be taxed for it and will have to pay Fuel Benefit Charge. Fuel Benefit Charge is worked out by taking a nominal figure of £14,400 rather than the car's list price, multiplying this figure by the car tax band percentage rating and then by the employee's income tax band

You shouldn't automatically assume that this will work out cheaper than paying for your own fuel. If you don't cover a high mileage, it might actually work out more expensive, and you'd be better off opting out of Fuel Benefit Charge and just paying for your fuel as and when you need it. However if you do cover a lot of personal miles, then it can work out beneficial for you, so the best thing you can do is to sit down and work out a rough estimate of miles you think you will cover. Once you know, you can make the decision to opt in or out of private mileage.

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