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Tax and the company car

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The system for taxing those who use company cars has seen annual incremental increases in the cost of benefits, while maintaining the basic approach to taxing those who use a company owned vehicle. 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.

Cars emitting CO2 at a specified level are taxed on rates varying from 9% to 37% of the list price. Emissions for non-diesel driven cars from 0 to 50g/km (this band includes electric cars) are taxed at 9%, from 51-75g/km are taxed at 13% and from 76-94g/km, at 17% of list price.

Cars running solely on diesel fuel are currently subject to a 3% supplement. 

Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 37% of the car's price. These figures apply to all company cars, including second cars.

CO2 emission information

For all cars first registered from November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5).

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 CO- based car benefit percentage applied to a standard value of £22,600.

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 reduce its list 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!

HMRC has published advisory fuel only rates which will be accepted either for employers reimbursing employees for the cost of fuel for business mileage, or for employees reimbursing employers for the cost of fuel for private mileage in a company car. 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. In this instance a higher rate per mile might be agreed due to the typically higher fuel consumption

Current mileage rates

1 September 2017

These mileage rates officially apply as of 1 September 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 13p 8p
Over 2000cc 21p 13p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 12p

 

1 June 2017

These mileage rates officially apply as of 1 June 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 21p 14p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p

 

1 March 2017

These mileage rates officially apply as of 1 March 2017

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 22p 14p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p

 

1 December 2016

These mileage rates officially apply as of 1 December 2016

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 11p 7p
1401cc to 2000cc 14p 9p
Over 2000cc 21p 13p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p

 

For employees using their own transport

The approved maximum tax and national insurance free mileage allowances for employees using their own transport for business are as follows:

Flat rate First 10,000 Miles Miles over 10,000
Car or van 45p 25p
Motorcycle 24p 24p
Bicycle 20p 20p

 

 

 

 

Tax payable

These standard charges are subject to income tax at the basic, higher or additional 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 them to run their own car out of their taxed income. These are examples of the 2017/18 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
£
£13,000 103 494 859 572 994
£18,000 147 1008 1266 1116 1401
£25,000 220 1850 1672 2000 1808

Higher rate liability example

List Price CO2 emission g/km Tax Rate 40%
Petrol Diesel
Car
£
Fuel
£
Car
£
Fuel
£
£13,000 103 988 1718 1144 1989
£18,000 147 2016 2531 2232 2802
£30,000 220 4440 3345 4800 3616

Additional rate liability example

List Price CO2 emission g/km Tax Rate 45%
Petrol Diesel
Car
£
Fuel
£
Car
£
Fuel
£
£13,000 103 1112 1932 1287 2239
£18,000 147 2268 2848 2511 3153
£40,000 220 6660 3763 7200 4068