Company car tax and how much it will cost is important when you decide whether to take a company car or to opt out and take a car allowance and go for "personal contract hire". Following is some information to help you decide.
Company car tax is derived from a (Benefit in Kind) BIK tax, imposed by HMRC and is calculated as a percentage of the P11d value of your car (this is the full retail, non-discounted price inc. extras). The percentage is determined by the emissions of the car allocated. An employee earning £37,401 per year or less will have to pay 20% of this amount in tax and those earning over that amount will pay 40%. If you earn over £150,000 each year you will pay 50%. This is normally deducted as PAYE tax each month from your salary.
Recent Taxation Changes
From April 2012, cars will be allocated in to Writing Down Allowance pools as follows:
- 161+ C02 g/km- 8% Special Pool (131g/km from April 2013)
- 111-160 C02 g/km - 18% Plant and Machinery Pool (96-130g/km from April 2013)
- Up to 110 C02 g/km- 100% First Year Allowance (FYA) (95g/km from April 2013*)
*From this date leased business cars will no longer be eligible for the FYA.
- For Contract Hire you can claim:
- 100% of the rental if the C02 is up to 160g/km (130 g/km from April 2013)
- 85% of the rental if the C02 is > 160g/km (130 g/km from April 2013)
The Treasury has confirmed that this change will only apply to new cars purchased from April 2013 onwards and the BVRLA (British Vehicle Rental and Leasing Association) will be working with them on transitional arrangements.
There are certain cars that are more beneficial, for instance in the tax year 2011-12 cars that emit below 75g/km CO2 only attract only 5% BIK. Following an announcement made by Alistair Darling last year in the pre-budget report, electric cars will be exempt from company car tax for five years, beginning in April 2010. This legislation is constantly changing – please check the current rules.
Manufacturers are also continuing to develop "super low" CO2 engines which are environmentally friendly. Most of this technology is applied to diesel cars and helps to reduce your tax bill. Diesel cars are usually more expensive than the petrol equivalent, so you need to make sure the higher P11D price and the fuel consumption doesn't outweigh any advantage from a lower tax band. Remember petrol costs less than diesel at the pumps so this should also be considered before committing to a vehicle.
Hybrid cars currently conform to the same tax rules as petrol cars. This means they sit in lower bands, so you'll pay less tax for owning them.
Light commercial vehicles, including double-cab pick-up trucks with payloads in excess of 1000kg, are classed as a benefit in kind if they are also provided for private use. Unlike cars, use of commercial vehicles provided by an employer is levied at a flat rate.
Currently this is £3000 if the van is less than four years old at the end of the tax year. Therefore a basic rate taxpayer would owe the treasury £600 a year, while a higher rate taxpayer would have an annual bill of £1200.
Private Fuel for Company Cars
- A taxable benefit of £18,800 per year in the tax year 2011-12
- This will be increased to £20,200 in the tax year 2012-13
- It will further increase by the RPI (Retail Price Index) + 2% in 2013-14
Company Van Taxation
- Currently a taxable benefit of £31,000 per year
- This equates to £600 per year for a 20% tax payer
- Fuel benefit is £550 per year in the tax years 2011-12 and 2012-13
- This equates to £110 per year for a 20% tax payer
- Fuel benefit will increase by the RPI the tax year 2013-14
- This may change when all LCVs (Light Commercial Vehicles) have a C02 rating
Taxation and Commercial Vehicles
- Van C02 targets set by European Parliament
- 2014 average C02 of 175 g/km for 70% of a manufacturer's current production range
- 2017 average C02 of 175 g/km for 100% of a manufacturer's current production range
- 2020 average C02 of 147 g/km for 100% of a manufacturer's current production range
The table below outlines the tax payable on company cars over the next few years:
|BIK 0/o banding||2011-12 (g/km)||2012-13 (g/km)||2013-14 (g/km)S||2014-15 (g/km)||2015-16 (g/km)||2016-17 (g/km)|