For employees; If your employer provides you with a company car it is considered as a Benefit In Kind (BIK) which you receive on top of your salary – and as such subject to tax (both personal Income Tax and Class 1a National Insurance for the business).
BIK is charged at a rate from 5% to 37% of the list price of the vehicle, depending on it’s CO2 output – see chart below. Therefore you may find that an expensive company car with high emissions may not be so attractive. Also note, that the BIK is calculated on the list price, so purchasing second-hand company cars may not be suitable.
Company car tax bands are not to be confused with Vehicle Excise Duty (VED) car tax bands, or ‘road tax’.
The company car tax rate is broadly determined by its carbon dioxide (CO2) emissions, categories into bands and a corresponding percentage applied to the car’s P11D value. The P11D value of the car includes its Recommended Retail Price (RRP), VAT and any optional extras such as sat nav, cruise control, parking sensors etc. However, this does not include non-taxable items such as the original registration fee and 1st year’s road tax. The P11D value can be reduced if you pay something upfront towards the cost of the car or you only have the car part-time.
The following are also taken into account:
- capital contributions by the employee to the cost of the car or accessories
- for years to 2010/11 only, the price (net of capital contributions) is subject to a maximum; no limit is applied from 2011/12 onwards
- periods when the car is unavailable
- payments by the employee for private use of the car
- if the car is a classic car some rules are modified
- periods when the car is shared
The benefit is calculated afresh for each tax year because any of the constituents taken into account in the calculation can change.