Company Car Tax Charges

While the benefits of having a company car and not having to worry about the associated running costs can be enjoyed by employees, the tax cost of expensive high-emission cars can be eye-wateringly high! It is perhaps worthwhile reminding ourselves of the basic rules and then consider how it might be possible to enjoy the convenience that comes with having a company car with a relatively low tax cost.

Benefit in Kind (BIK) charges for cars are calculated as a percentage of the list price of the vehicle and are dependent upon the CO2 emissions; the higher the emissions, the higher the charge.

Expensive high-emission cars (some might say – gas guzzlers) not only have a high list price but can attract charges up to 37%. Taking an £80,000 vehicle with CO2 emissions above 180 g/km, the car use benefit is £29,600 per annum.

Additionally, a fuel benefit charge is also payable where private fuel is used. The charge is fixed (£23,400 for 2018/19) and is calculated using the same percentage. In the example, the total benefit is £38,258 (£80,000 + £23,400 = £103,400 x 37%) and is subject to income tax at the appropriate rate for the individual. Class 1A national insurance at 12.8% of the total benefit is also payable by the employer.

Rates for petrol cars in 2018/19 are as follows:-

 

CO2 g/km 0 – 50 51 – 75 76 – 94 95 +
Charge 13% 16% 19% 20% + 1% for each extra 5g/km over 95g/km up to max. 37%

 

Additional charges apply for diesel cars that do not meet the RDE2 standard (Real Driving Emissions standard – legislated as NOx <80mg/km and known as Euro6d) and for 2018/19 an additional 4% is added to above petrol figures.

The following can be considered to reduce BIK charges:-

  • Lower emission cars – lower emissions carry a lower percentage
  • Plug in hybrid or fully electric cars – percentages are significantly lower, 0-50 g/km are 13%
  • It is also worth remembering that vehicles with CO2 emissions below 75% qualify for 100% FYA (First Year Allowances)
  • Petrol rather than diesel – avoiding the additional 4% surcharge
  • Review private fuel usage – compare the private cost against the BIK charge
  • Van alternatives – consider using vans as company vehicles where the benefit is set at £3,350 for 2018/19 or £1,340 for zero emission vans
  • Restricted or limited access can reduce the benefit
  • Employee contributions can also reduce the benefit

Cars are becoming more efficient, but the tax charges are increasing and perhaps now is the time to reassess company car benefits?

 

Blog written by Andy Harper

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ICAEWThe Chartered Institute of TaxationACCAIPG