Company car taxes – BENEFIT IN KIND TAX
A fully expensed car is a common employee benefit that has income tax, VAT and national insurance (NI) consequences. A ‘Company Car’ refers to a car provided for an employee’s private as well as business use. It includes vehicles provided to employees, but not sole traders or partners.
This brief review of the rules may highlight areas in which savings can be made or liabilities avoided.
Company Cars
Recent Budgets have continued to encourage environmentally friendly travel. Car benefit in kind tax, vehicle excise duty, private fuel and capital allowances are all now based on CO2 emissions. This affects both employees and the employer providing the car.
- Employee-paid BIK tax rates are based on the car’s P11D price, its fuel type and C02 emissions
- Employer-paid National Insurance contributions (NIC) are based on a car’s ‘assessed benefit in kind value’ (again based on CO2 emissions)
The P11D is the list price of the car, the day before it was first registered, including delivery charges but excluding Road Fund Licence and First Year Registration Fee.
Essentials Top Tip
The P11D list price is not the price the customer pays for the car. For example, the BIK on a used car is based on its price when it was new.
Any extras fitted to the car (including items fitted after the vehicle is delivered) that cost over £100, e.g. a tow bar, should be included in this figure.
How is the employee taxed?
Drivers of company cars are treated as if they have received a monetary amount equivalent to the value of the car. This taxable benefit is added to their income and taxed accordingly.
The employee’s tax code typically includes the taxable benefit which is collected monthly through PAYE. Any adjustments are normally made after the end of the tax year.
How is the taxable benefit calculated?
To get the BIK costs for a car, multiply its P11D value by its BIK rate and then by the employee’s tax rate. Divide this figure by 12 to get the monthly payment.
Let’s look at this example:
Car P11D value: £10,000
BIK rate: 10% (based on the C02 emissions of the car)
Income Tax Rate: 20%
Multiplying £10,000 x 10% (or 0.1) = £1000 (Assessed BIK Value)
Multiplying £1000 x 20% (or 0.2) = £200 Annual BIK tax
12 monthly payments of £16.67
Let’s take the same vehicle but with an employee Income Tax Rate of 40%:
Multiply £10,000 x 10% (or 0.1) = £1,000
Multiply £1000 x 40% (or 0.4) = £400 Annual BIK tax
12 monthly payments of £33.33
Taxable Free Fuel Benefit
Some employers provide fuel for private miles (including travel to and from a regular place of work). This is also subject to a Benefit in Kind charge.
This is calculated separately to the Car BIK tax but uses similar figures.
Each year, the Government sets the Car Fuel Benefit Multiplier. This is a standard figure that applies to all cars and will increase each year with the Retail Price Index
| Car Fuel Benefit Multiplier | |
|---|---|
| 2022/23 | £25,300 |
| 2023/24 | £27,800 |
How is the Fuel benefit calculated?
Fuel benefit is calculated by multiplying the Car Fuel Benefit Multiplier (CFBM) figure by the BIK Rate and then multiplying this by the employee’s tax rate. If the BIK rate is 25% and income tax rate is 20%, it would look like this:
Car Fuel Benefit Multiplier (2023/24): £27,800
Car BIK Rate: 25%
Employee Tax Rate: 20%
Multiply £27,800 by 25% (or 0.25) = £6,950
Multiply £6,950 by 20% (or 0.2) = £1,390 BIK tax payable
12 monthly payments = £115.84
If we take the same vehicle but with an employee income tax rate of 40%:
Multiply £27,800 by 25% (or 0.25) = £6,950
Multiply £6,950 by 40% (or 0.4) = £2,780 BIK tax payable
12 monthly payments = £231.67
Is it worth it?
In some cases, this benefit can end up costing the employee more than if they were to pay for the fuel themselves. If the BIK payment is higher than it would cost to fuel up each month, this benefit is not worth having.
If the BIK payment is lower than it would cost to fuel up each month, this benefit is worth having.
Company Car Benefit in Kind – Scale Charge Calculator
SWIPE >
| CO2 | Electric Range | 2022/23 | 2023/24 | 2024/25 | 2025/26 |
|---|---|---|---|---|---|
| 0 | NA | 2% | 2% | 2% | 3% |
| 1-50 | More than 130 | 2% | 2% | 2% | 3% |
| 70 -129 | 5% | 5% | 5% | 6% | |
| 40-69 | 8% | 8% | 8% | 9% | |
| 30-39 | 12% | 12% | 12% | 9% | |
| Less than 30 | 14% | 14% | 14% | 15% | |
| 51-54 | 15% | 15% | 15% | 16% | |
| 55-59 | 16% | 16% | 16% | 17% | |
| 60-64 | 17% | 17% | 17% | 18% | |
| 65-69 | 18% | 18% | 18% | 19% | |
| 70-74 | 19% | 19% | 19% | 20% | |
| 75-79 | 20% | 20% | 20% | 21% | |
| 80-84 | 21% | 21% | 21% | 22% | |
| 85-89 | 22% | 22% | 22% | 23% | |
| 90-94 | 23% | 23% | 23% | 24% | |
| 95-99 | 24% | 24% | 24% | 25% | |
| 100-104 | 25% | 25% | 25% | 26% | |
| 105-109 | 26% | 26% | 26% | 27% | |
| 110-114 | 27% | 27% | 27% | 28% | |
| 115-119 | 28% | 28% | 28% | 29% | |
| 120-124 | 29% | 29% | 29% | 30% | |
| 125-129 | 30% | 30% | 30% | 31% | |
| 130-134 | 31% | 31% | 31% | 32% | |
| 135-139 | 32% | 32% | 32% | 33% | |
| 140-144 | 33% | 33% | 33% | 34% | |
| 145-149 | 34% | 34% | 34% | 35% | |
| 150-154 | 35% | 35% | 35% | 36% | |
| 155-159 | 36% | 36% | 36% | 37% | |
| 160 and over | 37% | 37% | 37% | 38% |
Note
For all cars, drivers must add 4% to their appropriate percentage if the car is propelled solely by diesel (up to a maximum of 37%). Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt from the diesel supplement.
How are details given to HMRC?
The P11D form details must be submitted to HMRC at the end of each Tax Year by the employer.
Is there a national insurance liability for employers?
Yes, it is called a Class 1A and is paid by the employer on the assessed BIK value of the car.
It’s payable following the end of the tax year. The rate of NIC is the rate for the year in which the benefit arises, not the rate for the year in which the liability is paid.
Company Car Alternative (Opting Out)
Rather than offering a company car scheme, some employers will offer employees regular payments to use a personal vehicle for business purposes. The amounts offered will vary from business to business and job to job and are often set in line with pay scales.
As it is a personal car, there is no BIK tax to pay.
This employer payment is treated as part of the employee’s salary and is subject to tax and NI.
Employers using this alternative will usually provide a ‘pence per business mile’ (Mileage Allowance Payment or MAP) for business journeys. This mileage is tax free up to a HMRC set limit and is known as Approved Mileage Allowance Payments (AMAP).
If mileage paid is more than the AMAP, the employee pays tax and NI on the excess. If the mileage is less than the AMAP, the employee can claim tax relief on the shortfall.
Is it worth opting out?
An employee taking the opt-out option is responsible for the total costs of the car.
They will have to purchase, maintain and service the car, pay the Vehicle Excise Duty (VED) – otherwise known as Road Fund Licence – and insurance (this will also have to cover business use), the financing charges and depreciation (the loss in the vehicle’s value over the period), tyres, roadside assistance and, of course, the fuel itself.
Don’t underestimate the cost of all of these. Any net salary increases, and fuel payments coupled with Benefit in Kind tax savings will need to cover all these costs to make opting out worthwhile.
Approved Mileage Allowance Payments (AMAP)
These are the maximum amounts that can be received without being liable for tax or NIC.
For employees receiving less than the stated maximums the difference can be claimed as tax relief. This can be done by a self-assessment tax return at the end of the tax year, but can also be built into a tax code, so that the benefit is received immediately.
| AMAP RATES: CARS AND VANS | |
|---|---|
| Up to 10,000 business miles | 0.45p per mile |
| Over 10,000 business miles | 0.25p per mile |
Vehicle Excise Duty (VED) for cars first registered on or after 1 april 2017
(Also known as Road Fund Licence, car tax or road tax)
This is an annual tax levied against most vehicles which are used on public roads in the UK. It’s increased annually in line with the Retail Price Index. For cars, the rate applied to a vehicle is determined by its C02 emissions.
The 2018 Budget announced that new diesel vehicles registered after 1 April, 2018 that do not meet the real driving emission step 2 (RDE2) standard will be charged a supplement on their first year rate to the effect of moving up by one Vehicle Excise Duty band.
Cars with a list price of over £40,000 when new pay an additional rate of £390 per year on top of the standard rate, for five years.
Alternative fuelled vehicles, including hybrids, bioethanol and liquid petroleum gas, pay £170 per annum.
NOTE: The previous announcement by the Government that, from April 2025, electric cars, vans and motorcycles will begin to pay VED in the same way as petrol and diesel vehicles, still applies. There has been a great deal of lobbying to remove it in order to promote these more efficient vehicles – but no movement as yet!
It means that:
- New zero emission cars registered on or after April 1, 2025, will be liable to pay the lowest first year rate of VED (which applies to vehicles with CO2 emissions 1 to 50g/km) From the second year of registration onwards, they will move to the standard rate.
- Zero-emission cars first registered between April 1, 2017 and March 31, 2025 will also pay the standard rate.
- The Expensive Car Supplement (ECS) exemption for electric vehicles is due to end in 2025, so new zero emission cars registered on or after April 1, 2025 will therefore be liable for the ECS .
SWIPE >
| VED Bands and Rates for Cars | ||||
|---|---|---|---|---|
| 2022/23 | 2023/24 | |||
| C02 emissions (g/km) | First year rate | Standard rate | First year rate | Standard rate |
| 0 | £0 | £0 | £0 | £0 |
| 1-50 | £10 | £165 | £10 | £180 |
| 51-75 | £25 | £165 | £30 | £180 |
| 76-90 | £120 | £165 | £130 | £180 |
| 91-100 | £150 | £165 | £165 | £180 |
| 101-130 | £170 | £165 | £185 | £180 |
| 111-130 | £190 | £165 | £210 | £180 |
| 131-150 | £230 | £165 | £255 | £180 |
| 151-170 | £585 | £165 | £645 | £180 |
| 171-190 | £945 | £165 | £1,040 | £180 |
| 191-225 | £1,420 | £165 | £1,565 | £180 |
| 226-255 | £2,015 | £165 | £2,220 | £180 |
| Over 255 | £2,365 | £165 | £2,605 | £180 |
Statutory Off Road Notice
Registered vehicles that are not being used or parked on public roads and which have been taxed since January 31, 1998, must be covered by a Statutory Off Road Notification (SORN) to avoid VED.