company car tax

How to Calculate Company Car Tax

Recent changes to the company car tax regime have fuelled a booming market for electric and plug-in hybrid vehicles. Find out more about the savings with our step-by-step guide.

What is company car tax?

Company cars are a long-standing employee perk in the UK, but there are some financial strings attached. If your employer provides you with a car which is available for private journeys, then both of you will pay tax on it as a benefit-in-kind. There are around 900,000 drivers in the UK, paying a combined £4.8bn in tax revenue according to the latest data [1].

Company car tax has also been an important lever for behavioural change. Incentives encouraging drivers to choose low-CO2 vehicles were introduced in 2002 [2], doubling the take-up of diesel cars within two years [3] and fuelling demand for plug-in hybrids a decade later. A reformed system, which came into force in April 2020 [4], is having a similar effect on battery-electric vehicles.

How does the company car tax system work?

Company car tax is influenced by four factors:

  1. List price (P11d), including non-standard options, VAT, delivery and inspection costs, but excludes the registration fee and first-year vehicle excise duty.
  2. CO2 emissions, which have been based on the tougher new WLTP test cycle since last April.
  3. Electric range for vehicles with CO2 emissions between 1g/km and 50gkm. This applies to most plug-in hybrids.
  4. The driver’s income tax rate.

The CO2-weighted tax bands were revised in April 2020 and, from April 2022, they will be frozen until the 2024/25 financial year [5]. This means plug-in hybrid and electric vehicles are usually significantly cheaper than their petrol or diesel counterparts for the duration of a typical lease.

Rates for the next four financial years are as follows:

Rates for the next four financial years are as follows:

CO2

(g/km)

EV Range

(miles)

2021/22 2022/23 2023/24 2024/25
0 Any 1% 2% 2% 2%
0-50 >130 1% 2% 2% 2%
0-50 70-129 4% 5% 5% 5%
0-50 40-69 7% 8% 8% 8%
0-50 30-39 11% 12% 12% 12%
0-50 <30 13% 14% 14% 14%
51-54 14% 15% 15% 15%
55-59 15% 16% 16% 16%
60-64 16% 17% 17% 17%
65-69 17% 18% 18% 18%
70-74 18% 19% 19% 19%
75-79 19% 20% 20% 20%
80-84 20% 21% 21% 21%
85-89 21% 22% 22% 22%
90-94 22% 23% 23% 23%
95-99 23% 24% 24% 24%
100-104 24% 25% 25% 25%
105-109 25% 26% 26% 26%
110-114 26% 27% 27% 27%
115-119 27% 28% 28% 28%
120-124 28% 29% 29% 29%
125-129 29% 30% 30% 30%
130-134 30% 31% 31% 31%
135-139 31% 32% 32% 32%
140-144 32% 33% 33% 33%
145-149 33% 34% 34% 34%
150-154 34% 35% 35% 35%
155-159 35% 36% 36% 36%
160-164 36% 37% 37% 37%
165+ 37% 37% 37% 37%

What does this actually cost?

The start point is calculating the vehicle’s taxable value, using the list price (P11d) and CO2-based tax bands above.

For the following worked example, we’ve compared three cars with a list price of £35,000. One diesel (130g/km CO2), one plug-in hybrid (30g/km CO2, 35-mile EV range) and an electric car (0g/km CO2). The taxable value is calculated as follows:

–          Electric: £35,000 (P11d) x 0.01 (2021/22 tax band) = £350 (taxable value)

–          PHEV: £35,000 (P11d) x 0.11 (2021/22 tax band) = £3,850 (taxable value)

–          Diesel: £35,000 (P11d) x 0.30 (2021/22 tax band) = £10,500 (taxable value)

Drivers pay Benefit-in-Kind based on their income tax rate; typically either a basic rate of 20% (annual income between £12,571 and £50,270), or a higher rate of 40% (annual income between £50,271 and £150,000). This is taken out of their monthly pay.

Benefit-in-Kind costs: 20% taxpayer

–          Electric: £350 (taxable value) x 0.20 (income tax rate) = £70 (£5.83 per month)

–          Hybrid: £3,850 (taxable value) x 0.20 (income tax rate) = £770 (£64.17 per month)

–          Petrol: £10,500 (taxable value) x 0.20 (income tax rate) = £2,100 (£175 per month)

Benefit-in-Kind costs: 40% taxpayer

–          Electric: £350 (taxable value) x 0.40 (income tax rate) = £140 (£11.67 per month)

–          Hybrid: £3,850 (taxable value) x 0.40 (income tax rate) = £1,540 (£128.33 per month)

–          Petrol: £10,500 (taxable value) x 0.40 (income tax rate) = £4,200 (£350 per month)

Employers pay annual Class 1A National Insurance Contributions (NICs) for employers to use company cars, and these are charged at a flat rate of 13.8% [6]. These are calculated as follows:

–          Electric: £350 (taxable value) x 0.138 (NIC rate) = £48.30

–          PHEV: £3,850 (taxable value) x 0.138 (NIC rate) = £531.30

–          Diesel: £10,500 (taxable value) x 0.138 (NIC rate) = £1,449.00

Want to know more about company car tax?

LeasePlan and Deloitte’s annual Fleet Funding and Taxation Guide provides a detailed analysis of future changes, including case study examples and a detailed timeline.

The comprehensive guide gives you the facts you need to make the right decisions for your fleet, and make sure you’re prepared for future changes.

For further information please speak to your LeasePlan Account Manager, alternatively contact a member of the LeasePlan Consultancy Services team.

Tel: 0344 371 8032
Email: consultancyservices@leaseplan.co.uk


REFERENCES:

[1] HM Revenue and Customs. (2020) Company car benefit and company car fuel benefit: recipients, taxable value and income tax and NICs liability, 2017 to 2018. [online]. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/921713/Benefits_in_Kind_Statistics_Tables_September_2020.xlsx. [Accessed 27 Jul. 2021].

[2] HM Revenue and Customs. (2019). Company car tax rules: 2013 to 2020. [online] Available at: https://www.gov.uk/government/statistics/taxable-benefits-in-kind-and-expenses-payments-company-car-tax-rules-2005-to-2016. [Accessed 27 Jul. 2021].

[3] HM Revenue & Customs. (2006) Report on the Evaluation of the Company Car Tax Reform: Stage 2. [online]. Available at: https://webarchive.nationalarchives.gov.uk/20100202231351/http://www.hmrc.gov.uk/cars/stage-2-evaluation.pdf. [Accessed 27 Jul. 2021].

[4] HM Revenue & Customs. (2019). Company car benefit – the appropriate percentage (480: Appendix 2). [online] Available at: https://www.gov.uk/guidance/company-car-benefit-the-appropriate-percentage-480-appendix-2. [Accessed 27 Jul. 2021].

[5] HM Treasury (2020). Budget 2020. [online] Available at: https://www.gov.uk/government/publications/budget-2020-documents/budget-2020. [Accessed 27 Jul. 2021].

[6] HM Revenue & Customs (2020). National Insurance rates and categories. [online] Available at: https://www.gov.uk/national-insurance-rates-letters. [Accessed 27 Jul. 2021]. D

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