Company Car Tax – Everything You Need to Know
Benefit in kind, P11D and company car tax explained. Plus rates for 2015-2016 to 2019-2020
Whether you’re looking into getting your first company car, or working out next year’s benefit in kind, company car tax can be difficult to get your head around. We’ve put together a simple guide to explain company car tax.
What Is Benefit In Kind?
Benefit in kind is a perk that an employee/director receives via work but is not included in the salary. A company car, for example. This type of perk – which is also known as a fringe benefit - is subject to company car tax if the motorist uses it for private trips as well as business. Examples include travelling between home and work, taking the children to school and holidays.
How much company car tax a motorist pays is based, in part, on a P11D value. This incorporates the vehicle's list price plus delivery, optional extras and registration plates. The motorist pays tax on a percentage of this sum. What percentage is defined by the vehicle's emissions (CO2). The lower the emissions the lower the percentage.
What is a P11D Form?
The P11D is a statutory form required by HMRC from UK based employers. The P11D form should detail the cash equivalents of benefits and expenses that businesses have provided during the tax year to their directors, and employees earning at the rate of more than £8,500 per year.
Company Car Tax: Petrol or Diesel?
Many of those that drive company cars probably drive a diesel variant. In many cases, those companies with large fleets consider diesel cars to be safer option when it comes to running costs. Diesel cars offer a greater incentive to their petrol counterparts as they produce less CO2, however they currently carry a 3% surcharge over petrol models with similar emissions because they emit greater amounts of harmful particulates to the atmosphere.
Company Car Tax Calculation Example
Imagine a car has a P11D of £10,000. It has a petrol engine and emits carbon at a rate of 99g/km. The table reveals that its benefit in kind rate is 14% for 2015-2016. This totals £1,400 of the £10,000. The former is added to the employee’s salary – not literally but for calculation purposes – then tax is charged at his/her normal income tax rate. This is 20%, 40% or 45% (depending on income). Therefore, a motorist in the lowest bracket pays £280.
How Much Company Car Tax Will You Pay
How much company car tax you pay is determined by your annual salary. If you pay 20% income tax, you’ll pay 20% of the taxable portion of the car’s P11D value. The same applies if you pay 40% income tax, you will pay 40% on the taxable P11D value. In most instances, this is deducted from your monthly pay.
To find out exactly how much you will pay, use our free company car tax calculator.
Company Car Tax Bands
The BIK rates for 2015-2016 - 2019-2020 are:
Note: For diesel hybrid powered cars, the 3% diesel surcharge in 2015-2016 does not apply.
|Petrol||Diesel||All fuels||All fuels||All fuels||All fuels|
|230 or above||37||37||37||37||37||37|