Company Car Tax

The basis for taxing those who use company cars is to tax a figure calculated by multiplying the car’s list price by an emissions-based percentage (the “appropriate percentage”), with a 3% surcharge on diesel powered cars.

The maximum taxable value of the benefit is 37% (previously 35%) of the list price of the car when first registered. The list price includes car tax (if applicable), Value Added Tax and delivery charges.

Cars running solely on diesel fuel are subject to a 3% supplement.

From April 2015 the five year exemption for zero carbon and the lower rate for ultra-low carbon emission cars came to an end. Two new bands were introduced for ultra-low emission vehicles (ULEVs). These were set at 0-50 g/km (5%) and 51-75 g/km (9%).

The remaining appropriate percentages have been increased by two percentage points for cars emitting more than 75 g/km, to a new maximum of 37%. The detailed figures are shown in the Appendix.

CO₂ emission information

For all cars first registered from at least November 2000, the definitive CO₂ emissions figure for tax purposes is recorded on the Vehicle Registration Document (V5). Under an agreement with HM Revenue & Customs (HMRC), the Society of Motor Manufacturers and Traders (SMMT) is providing a CO₂ emissions enquiry service on their website at www.smmt.co.uk for cars first registered from January 1998.

Older Cars

Cars first registered before January 1998, for which there are no reliable CO₂ emissions data, are taxed according to their engine size, as follows:

Car Fuel Benefit

Where the employer pays for any fuel used privately by the employee, there is an additional benefit charge calculated by applying the CO2-based car benefit percentage to the car fuel benefit charge multiplier of £22,200 (2016-17).

Employee Contributions

Where the employee is required, as a condition of the car being made available, to pay for the private use of a car the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will reduce its price for tax purposes.

By contrast it is "all or nothing" for the car fuel benefit charge, which remains at the full value unless the employee pays for all private fuel!

HMRC publishes advisory fuel rates for company cars which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.

Advisory fuel rates (from 1 June 2016)

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Tax Payable

These standard charges are subject to income tax at basic, higher or additional rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code. 

Tax Free Benefits

Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

Pooled Cars

There is no tax for using a pooled car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others. 

Please note: A pooled car must not normally be kept overnight at or near an employee's home.

Business Use of Employees’ Own Vehicles

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own vehicles. This section explains the tax and national insurance position. A statutory system of Approved Mileage Allowance Payments (AMAPs) applies for employees using their own vehicles for business journeys, as follows:

It is no longer possible to make a claim for tax relief based on the actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Unless the employee is reimbursed at a rate higher than the AMAP rate, the payments do not need to be reported. If the employer pays less than these rates, it is possible for the employee to claim tax relief for the shortfall (Mileage Allowance Relief).

Rates of up to 5p per mile, per passenger, are also tax- and NICs- free when paid for the carriage of fellow employees on the same business trip. From April 2011 allowanceS for passenger payments have been extended to volunteers.

Company vans

The taxable benefit for the unrestricted use of vans will be £3,170. There is a further £598 of taxable benefit if the employer provides fuel for private travel.

Van drivers can avoid the benefit in kind charge of £3,170 per year, if they agree not to use the van for personal journeys. Driving to and from work is acceptable as long as there is a reasonable amount of business use. It is advisable to keep a regular check on the vehicle’s mileage to ensure the ‘only for business rule’ is kept.

As previously announced the van benefit for zero emission vans is to be increased on a tapered basis so that there will be a single van benefit charge applying to all vans by April 2022. For 2016-17 the charge will be 20% of the value of the standard van benefit charge (i.e. £634) There is no fuel benefit for such vans.

Tax Saving Check List

• Keep adequate records of business mileage.
• Always check your tax code to see that the correct benefit is being applied.
• Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
• If you have low private mileage, you may be better off if you pay for all your own private fuel.
• If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
• Encourage your employer to apply to HMRC for an agreement with fixed rate expenses.
• Tax-free parking is a must!

Company Car Tax 2016-17