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This essential guide to company car tax for employers explains not only what these taxes are, but also how each is calculated and what strategies businesses can use to reduce the amount payable. In addition, the guide details important factors that businesses should ensure employees understand about company vehicle taxation.
Company car tax is a tax payable by any business (not just companies) who provide an employee with a car that is used for private as well as business usage. In this case, both the business and the employee will need to pay tax on it. ‘
‘Company car tax’ (NIC/Class 1A National Insurance Contributions) is the term used to refer to the tax payable by employers, whereas ‘benefit in kind’ or BIK is the term used for tax payable by employees on any benefit given to them that they enjoy a ‘personal’ benefit from, such as a car.
NB: The benefits and taxation rules regarding company cars are the same for company directors as they are for employees. Therefore, where the term ‘employee’ is used, this should also be taken to include reference to any Company Director.
Company vehicles are usually given to employees for combined business and private usage, however on occasion they can be given for business-use only. The tax implications for businesses and employees are very different depending on whether the vehicle is used for business alone or for personal journeys as well.
Although a somewhat difficult test to pass, if you as an employer can demonstrate that the car is ‘not available for personal use’, there will be no company car tax payable on the vehicle by the company and no BIK (or benefit in kind) payable by the employee. The ‘pass or fail’ test the HMRC applies is whether the vehicle is ‘available for private usage’ (the vehicle must not be parked at a home overnight, nor be driven between work and home or visa-versa etc.). In addition, it must also be insured for business-only usage. These rules also apply to pool car vehicle (i.e. where more than one employee is using the vehicle). As mentioned earlier, such strict business-only usage is very unusual.
If the employee uses the company car for a mix of business and private use, the HMRC sees this as a bonus of employment and the business must pay company car tax on the vehicle and the employee must pay BIK. This is usually deducted from their monthly salary/wages.
The amount of NIC payable by an employer on a company car that is used by an employee for mixed private and business use is determined by the following factors:
The amount of NIC tax payable is calculated by multiplying the figure for the car’s emissions level and engine type by its P11d value. This figure is then multiplied by the annual percentage rate for NI contributions (currently 13.8%) to give you the amount of NIC due for that vehicle for that year, e.g.:
30% (our theoretical vehicle’s emissions band and engine type) x P11d value. This is then multiplied x 13.8% (the current BIK rate).
If you’re considering leasing from us, the emissions level is clearly shown beside each vehicle on the Select Car Leasing website. Alternatively, you can find out your vehicles’ current HMRC emissions banding rating here:
| CO2 emissions | Diesel cars (TC49) that meet the RDE2 standard and petrol cars (TC48) | All other diesel cars (TC49) | Alternative fuel cars (TC59) |
|---|---|---|---|
| 1 to 50g/km | £10 | £25 | £0 |
| 51 to 75g/km | £25 | £115 | £15 |
| 76 to 90g/km | £115 | £140 | £105 |
| 91 to 100g/km | £140 | £160 | £130 |
| 101 to 110g/km | £160 | £180 | £150 |
| 111 to 130g/km | £180 | £220 | £170 |
| 131 to 150g/km | £220 | £555 | £210 |
| 151 to 170g/km | £555 | £895 | £545 |
| 171 to 190g/km | £895 | £1,345 | £885 |
| 191 to 225g/km | £1,345 | £1,910 | £1,335 |
| 226 to 255g/km | £1,910 | £2,245 | £1,900 |
| Over 255g/km | £2,245 | £2,245 | £2,235 |
Regardless of whether the vehicle provided to the employee has any private usage. you are exempt from having to pay company car tax if you are the proprietor of any one of the following:
Your business will need to pay company car/van tax however if it is one of the following entities and the vehicle in question is provided to an employee and has mixed business-private usage:
Even if you are either an LTD or a PLC, however, you will generally be exempt from having to pay company car tax (i.e. NIC/Class 1A National Insurance Contributions) on a company vehicle that is provided under the following circumstances:
The BIK payable by employees for using a company car for mixed business-private use is determined by the following factors:
The BIK rate payable by employees can be calculated by multiplying the figure for the car’s emissions level and engine type, by the vehicle’s P11d value. This figure is then multiplied by the employee’s (or director’s) personal tax bracket (e.g. 20%, 40%), to give the amount that will be deducted from the employee’s salary or wages each month, e.g.:
Businesses can reduce (or even potentially avoid having to pay) company car tax under the following circumstances:
Information is provided as a guide only. Select Car Leasing cannot be held responsible for any personal or business decisions made as a result of information provided in the guides. As with all aspects of taxation, it is the responsibility of individuals and businesses to understand the rules and regulations and act accordingly. As personal and business circumstances can vary, it is also advised that you take professional accounting advice before making a final decision.
If you'd like to speak with our friendly team about business vehicle leasing, simply call 0118 920 5130 or email us at: enquiries@selectcarleasing.co.uk
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