UK Company Car Tax: What You Need to Know

20 February 2019

Company car tax: do you drive a company car?

If the answer is yes, or at least you are thinking about it, then you'll also need to consider who will pay for the business vehicle tax.

You have to pay tax on your company car:

• If you’re an employee

• If you’re self-employed but transact business as a limited liability company

• As an employer, you pay Class 1A National Insurance on every company car

• As an employer, you also have to complete and file a P46 car tax form for each of your company vehicles

How do I calculate company car tax?

For employees, HMRC considers a company car to be a valuable perk over and above your salary.

Your car is taxed at different rates, depending on:

• The car’s taxable value, or P11D value (The P11D value of your car comprises the list price, including VAT, plus any delivery charges, but does not include the car's first registration fee or its annual road tax)

• CO2 emissions

• Fuel type

• Your income tax bracket

From April 6, 2018, the BIK diesel supplement increases for all diesel cars that are not certified to the Real Driving Emissions Step 2 (RDE2) standard (also known as Euro 6d). The first-year VED rate for diesel cars will also go up by one band. The diesel supplement was announced by Chancellor Philip Hammond in the 2017 Autumn Budget, together with an increase in the company car tax diesel surcharge. The diesel supplement was already in force in 2017/18, however, as from 2019, it has increased by 1%, raising it from 3% to 4%. The Chancellor said the money will come from “a temporary rise” in company car tax and vehicle excise duty on new diesel cars.

These are diesel cars which do not meet the standard set out under Annex IIA of Commission Regulation (EU) 2017/1151 for the second stage of Real Driving Emissions RDE 2 which will be set in legislation at a value of nitrogen oxides (NOx) no greater than 80mg/km. Diesel cars registered after 1 April 2018 and certified with a real-world NOx emissions figure greater than the RDE2 standard or without a certified NOx emissions figure will be subject to a supplement to the effect that these cars will go up by one VED band in their First-Year Rate.

Although the standard will not apply for two years, the Government papers anticipate a declining income from this surcharge before then. The Government says the impact in First Year Rates depends on vehicle choice, giving as examples someone purchasing a typical Ford Focus diesel paying an additional £20 in the First Year, a VW Golf an extra £40, a Vauxhall Mokka £300 and a Land Rover Discovery £400.

The diesel supplement applies if:

• Your car is a diesel engine only and not a hybrid

• The vehicle has been registered between 1 January 1998 and 31 August 2017

• You registered it on 1 September 2017 or after, but it isn’t RDE2-certified (Real Driving Emissions 2). This emissions test finds out how much nitrogen oxide (NOx) the car emits under real driving conditions. The RDE2 standard is 80mg of nitrogen oxide per kilometre

• You don’t have to pay the diesel supplement if you can prove your car emits less than 80mg of nitrogen oxide per kilometre.

Hybrids and electric cars

Hybrid and electric cars are a lot friendlier on the environment than petrol and diesel cars. Historically, BiK tax rates were a lot lower when applied to hybrids, while all-electric electric vehicles were completely exempt from tax. Due to more and more people purchasing hybrid and electric cars, HMRC will now be taxing these vehicles too.

The BiK rates for electric cars and hybrids are calculated according to how many miles they can drive without producing any CO2 emissions, also known as zero-emission mileage. Electric cars never produce any emissions, so they’re always taxed at the very lowest rate and in 2020/21, company car tax on hybrid and electric vehicles will be remarkably cheaper than any other engine type.

In a nutshell, the more a car pollutes and the more emissions it kicks out, the more tax you’ll pay. In contrast, the cleaner your car is, the less BiK tax you’ll pay.

Petrol, Diesel or Electric?

Based on the above, you'll see that the type of fuel your commercial vehicle uses will impact the vehicle tax cost. So it is important to consider the right car for you when getting a company car or fleet for your team. If you're looking for a new car, personally, through the business or looking to upgrade your company car fleet the these have been voted the best vehicles and we have great commercial vehicle deals for them: