Company Car Tax – A Guide

Company Car Tax

For many years the government’s company car tax policy has been designed around lower tax for lower emission cars.

Under the current tax system, employees (and directors) pay tax on the Benefit in Kind (BIK) for the use of the car provided by the company. The BIK charge is calculated by applying a percentage to the official value of the car (called the ‘P11D value’ which is usually the manufacturers list price of the car when new). The percentage that applies is determined by the car’s CO2 emissions – the higher the CO2 emissions, the higher the percentage rate. The BIK is then taxed at the employees’ appropriate personal tax rate – usually collected through the PAYE system.

Company car BIK rates 2019 – 2022

Current company car BIK rates start at 16%, with the rate increasing in 1% increments as the CO2 bands rise, up to a maximum of 37%. From 06 April 2018, to account for the greater level of NOx emissions, a 4% diesel car tax supplement has been applied to non-RDE2 compliant diesels, which are the vast majority of current diesel models.

Note that for diesel hybrids, the 4% diesel surcharge does not apply, since they are not classed as diesel-powered cars, but alternatively fuelled vehicles for tax purposes.

Electric vehicles are also rewarded with lower BIK rates with battery electric cars BIK-rated at 16% for FY 2019/20 but reducing to only 2% for FY 2020/21.

From April 2020, new BIK bands come into force for plug-in models with CO2 emissions of 1-50 g/km, with the new BIK levels dependent on the official electric-only range in miles. Those with a range in excess of 130 miles are classed as pure-electric models for the purposes of BIK ratings (at 2%), while those plug-in models with a range of less than 30 miles will be rated at 14%.

The table below shows how the percentage BIK rates vary with vehicle CO2 and electric-only range. The table represents petrol, diesel and electric related BIK rates for 2019-2022.

Cars First Registered before 6th April 2020

Cars Registered after 6th April 2020

Planning Points

The Electric option! – What the above table shows is that electric cars from 20-21 onwards, especially the longer-range models, have a significant reduction in their BIK charges.  The Government hoping of course that this will push more people towards the electric car option. Check out the web for a range of electric cars – and for that something special there is always the Tesla range!

Also note that for cars registered after 6th April 2020, the BIK charges are slightly reduced by 1-2% generally, so if you are thinking of changing your car around the end of the current tax year it may be better to defer the decision until after 6th April 2020 – that assumes of course that Government doesn’t change the rules before then, as we may have another budget in November / December 2019.

Directors and their family – the company car option for the low emission cars may still be advisable. Its certainly an option for the owner managed business owner who may want to provide their newly qualified children with a small car. The Insurance costs for the new driver are usually horrendous but if the company can meet this cost and get some tax relief in the process, with the director suffering the BIK charge on a small low emission car, it may be worthwhile – each case is different so please talk to us for further advice

By Paul Dell
Partner
0203 146 1606