Company Car Tax overviewReturn to top

When a company car is made available for the private use (including commuting) of an employee a 'Benefit-in-Kind' (BIK) rate is calculated in relation to the car and/or fuel provided for private use. This applies to any employee that earns £8,500 or more annually, who is offered a company car.

Employees are required to pay tax on the company car, the amount being based on a combination of the vehicle's price, BIK rate, and the employee's tax bracket.

Employers are also liable to pay Class 1A National Insurance on all company cars provided to employees. The amount payable is also based on a combination of the vehicle's price and BIK rate.

The current system has been designed for two reasons. Firstly, to ensure that the employee pays the appropriate tax to reflect their benefit of receiving a vehicle from an employer, and secondly to encourage drivers to choose more environmentally friendly vehicles. As a result, BIK rates are now dependent on vehicle CO2 emissions rather than vehicle mileage (as was the case previously).

While not strictly part of Company Car Tax, businesses are able to claim Enhanced Capital Allowances (ECAs) on the purchase of some of the greenest new vehicles.

Employee Company Car Tax – April 2010-2013Return to top

The amount of tax payable on a company car is based on a percentage of the new price published by the manufacturer, including VAT and any additional extras; this is officially known as the P11D value.

Any capital contributions that the employee makes towards the vehicle, of up to £5,000 will reduce the vehicle's taxable value.

The employee is then liable to pay tax on a percentage of the P11D value, determined by the vehicles CO2 emissions. The appropriate income tax paid by the driver is also accounted for.

The basic calculation to determine the amount of CCT payable is as follows:

CCT Payable = P11D value x %BIK rate based on CO2 emissions x Employees tax rate*

[*Employee tax rate is either 20% (basic) or 40% (higher) rate]

The table below displays how the percentage BIK rates are graduated according to CO2 emissions of the vehicle. The table represents both petrol and diesel BIK rates for the current tax year, and includes changes that will be made up to April 2014.

Company Car Tax %BIK Rates 2011-14

Vehicle CO2 g/km	2011/12 %BIK Rate		2012/13 %BIK Rate		2013/14 %BIK Rate
	Petrol	Diesel	Petrol	Diesel	Petrol	Diesel
0 (EV)	0	0	0	0	0	0
1-75	5	8	5	8	5	8
76-94	10	13	10	13	10	13
95-99	10	13	10	13	11	14
100-104	10	13	11	14	12	15
105-109	10	13	12	15	13	16
110-114	10	13	13	16	14	17
115-120	10	13	14	17	15	18
121-124	15	18	15	18	16	19
125-129	15	18	16	19	17	20
130-134	16	19	17	20	18	21
135-139	17	20	18	21	19	22
140-144	18	21	19	22	20	23
145-149	19	22	20	23	21	24
150-154	20	23	21	24	22	25
155-159	21	24	22	25	23	26
160-164	22	25	23	26	24	27
165-169	23	26	24	27	25	28
170-174	24	27	25	28	26	29
175-179	25	28	26	29	27	30
180-184	26	29	27	30	28	31
185-189	27	30	28	31	29	32
190-194	28	31	29	32	30	33
195-199	29	32	30	33	31	34
200-204	30	33	31	34	32	35
205-209	31	34	32	35	33	35
210-214	32	35	33	35	34	35
215-219	33	35	34	35	35	35
220-224	34	35	35	35	35	35
225-229	35	35	35	35	35	35
230 or above	35	35	35	35	35	35

For vehicles that were registered before 1st January 1998, there is no reliable source of CO2 emissions data. If such vehicles are to be used as company cars, they are taxed according to engine size: Up to 1400cc, BIK 15%; 1401-2000cc, BIK 22%; Over 2000cc, BIK 32%.

For the current tax year , BIK rates start at 10% for conventional petrol and 13% for diesel vehicles with CO2 emissions not exceeding 120g/km; above this emissions threshold, the charge generally rises in 1% increments for every 5g/km rise in CO2 (up until a ceiling value of 35%).

The rates for diesel vehicles are generally 3% higher than those for petrol equivalents, this is to take into account the greater emissions of local emissions produced when diesel is burnt.

Under the current system of Company Car Tax, low- and ultra-low carbon vehicles are rewarded with lower BIK rates. Using the same CO2-based percentages as shown above, plug-in hybrids are rated at 5% or 8% (petrol or diesel fuelled), and battery electric cars are zero-BIK rated. Conventional hybrids also receive a reduced BIK rate as a result of their lower CO2 emission, which tends to reduce their BIK rates by at least 5%.

The tax payable on 'free' or subsidised private fuel is also based on the CO2-related BIK rates, which is applied to a scale charge currently set at £18,000 for 2010/11. The result must then be multiplied by the employee's income tax rate to calculate the fuel tax to be paid. As with the tax on the vehicle, specific tax breaks are available for vehicles with CO2 emissions below 120g/km.

Employer Class 1A NICs and ECAs – April 2011-2012Return to top

Company car BIK rates are used to calculate Class 1A National Insurance payments which must be paid by the employer for each vehicle provided to emplees. The amount payable is calculated by multiplying the P11D value of the vehicle by the relevant BIK percentage rate and also the current agreed rate of 13.8%.

While not strictly part of Company Car Tax, businesses are able to claim Enhanced Capital Allowance (ECA) on some green vehicles. ECAs are intended to allow a company or organisation to write off the cost of certain assets against its taxable profits. The asset must be used for business related activities.

Under this scheme, battery electric vehicles or conventional vehicles with C02 emissions of less than 110g/km are eligible for a 100% 'write-down' in the first-year following purchase. To qualify, the vehicle must also be brand new, and the purchase must be made before 31st March 2013. Taxis and refuelling infrastructure equipment for natural gas, biogas or hydrogen vehicles are also eligible under the ECA scheme.

Changes to Company Car Tax rates – from April 2011Return to top

For the tax year 2011/12, in April 2011 the BIK rates were increased by 1%, to further encourage lower emission vehicle choice. In the 2010 budget, it was also announced that zero tail pipe emission cars and vans will have their BIK rate reduced to 0%; this will be guaranteed until 2015.

Under the company car taxation system, there were previously eight fuel type categories, but from April 2011 this was reduced to three, electric (E), diesel (D) and all other vehicles (A). In addition, there is no longer a discount for green vehicles (hybrids, bi-fuels, E85 etc). All diesels are now subject to the 3% surcharge.

The £80,000 ceiling P11D value was also removed, meaning that more expensive cars worth over this value are now taxed to their true value. This will help create a fairer system, whereby those that can afford expensive, often higher polluting vehicles will be liable for higher taxes.

Electric cars continue to be exempt from any tax.

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