Tue, 26 November 2019
It’s standard for businesses requiring their employees to travel as part of their regular duties to provide them with company cars, but sometimes they allow their employees to use their company cars for other purposes — something that incurs company car tax. If you’re thinking about doing this and want to know what company car tax involves, or are already doing it to some extent but don’t know how to determine what you owe, this article should clear things up.
The first thing we need to do here is differentiate between two different forms of company car tax: the kind that employers pay, and the kind that employees pay. The former is most relevant here, obviously: businesses are required to report the taxable value of the vehicles and fuel they provide for the private use of their employees. (The only realistic alternative is to provide company car allowances through raising salaries, simply adding to regular tax totals).
Private use involves travel outside of what’s explicitly needed for the employee to do their job. If you provide workers with vehicles and fuel to get from site to site for vital meetings, that’s tax-free — but if you let them use those vehicles to commute to work, or to drive around during their breaks, the rules say you’ll need to pay tax on them as they’ll essentially count as perks.
For the same reason, any of your employees using their company car for private use will need to pay tax on it. It’s part of Benefit-In-Kind tax, which targets additional benefits that don’t go through the usual financial channels. While this doesn’t directly concern you at a company level, it’s certainly something you should ensure your employees are aware of.
The easiest way to calculate what you owe is to use HMRC’s company car and car fuel benefit calculator, available here. It’s somewhat clunky and might not work in every browser (or on every device), so if you can’t make it work for you, you’ll need to calculate it manually using the second working sheet of the P11D form — you may need to take the manual approach regardless, because it’s required in some circumstances that are flagged up after submission.
If you can’t use an automatic calculator, or you’re just curious about the rates, check the table below to see how things stand for the 2019-2020 period (source — they’ll change again soon enough). Note that the 16% rate for electric vehicles will drop to 0% in 2020 as part of a government initiative to incentivize moving away from fossil fuels. Company car tax will then be reintroduced slowly, but only to 2% by 2022-2023 (at least, that’s the current plan).
|CO2 emissions in grams per kilometre||Appropriate Percentage (Electric & Petrol Vehicles)||Adjustment to Appropriate Percentage (Diesel Vehicles)|
|1-50||16%||Add 4% up to a maximum of 37% for diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) standard.
Add 0% for cars which are certified to the RDE2 standard.
|215 or more||37%|
The biggest way to minimise company car tax is to choose low-value company cars with low CO2 emissions. If they’re for employees to use outside of work, then they shouldn’t need to be high-performance sports vehicles: go with what’s practical. Note that the car value is determined by the manufacturer’s price, not the price you paid, so it won’t help if you get a great deal.
In addition, employees that pay something towards their company cars and/or only get to use them on occasion (if, for instance, they’re left at work 6 months out of the year) can make a note of this when submitting their tax information to get their payable amounts reduced.
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