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Understanding UK company car tax
Company car tax rules have been designed to encourage company car drivers to choose cars with lower levels of CO2 and NOx emissions; incentives are offered both to the company and to the recipient of the vehicle to select low emission vehicles, including 2% BIK for pure-electric cars.
Under the current system, company and employee company car tax are both based on a percentage of the official value of the car (called the 'P11D'), the percentage being primarily determined by the car's CO2 emissions. For the employee, the Benefit-in-Kind (BIK) is then taxed at the appropriate personal tax rate - usually collected through PAYE.
Company car tax payable by an employee is based on the vehicle's P11D value multiplied by the appropriate BIK rate (determined by the car's CO2 and fuel type) and the employee's income tax rate (basic rate of 20%, higher rate of 40% or additional rate of 45%).