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Tax and the company car

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The system for taxing those who use company cars has generally seen annual incremental increases in the cost of benefits, while maintaining the basic approach to taxing those who use a company owned vehicle. Nevertheless, from 6 April 2020, new company car tax rules have significantly reduced the tax payable on environmentally friendly vehicles, such as electric and hybrid cars. The basis of the charge is to tax a figure calculated by multiplying the car's list price by an emission-based percentage (often referred to as the 'appropriate percentage'). There is a 4% surcharge on diesel-powered cars not meeting the Real Driving Emissions Step 2 (RDE2) standard.

The emission-based percentage rate charged may also depend on whether the car was registered before or after 6 April 2020. A fully electric car will have no benefit in kind in the 2020/21 tax year. Hybrid engine cars with CO2 emissions between 1-50 g km will see the rate based on the official electric range (miles) ranging from 0% to 15%. The table below best illustrates the new rules:

CO2 emissions (g/km) Electric range (miles) Cars registered before 6 April 2020 Cars registered on or after 6 April 2020
0 n/a 0% 0%
1-50 130 and over 2% 0%
1-50 70 - 129 5% 3%
1-50 40 - 69 8% 6%
1-50 30 - 39 12% 10%
1-50 Under 130 14% 12%
51-54 n/a 15% 13%
Over 54 n/a +1% every 5g/km up to max of 37% +1% every 5g/km up to max of 37%

Diesels not meeting the RDE2 standard will be liable to a 4% surcharge, up to a maximum charge of 37%

A company car registered on or after 6 April 2020, with CO2 emissions of 49 g/km and an electric range of 75 miles, will generate a taxable benefit in kind value equal to 3% on the list price of the car. If the company car was registered before 6 April 2020, the appropriate percentage will be 5% on the list price of the car and, therefore, the taxable benefit in kind value will be higher.

Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 37% of the car's price. These figures apply to all company cars, including second cars.

CO2 emission information

For all cars first registered from November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5).

Older cars

Cars first registered before January 1998, for which there are no reliable CO2 emissions data, are taxed according to their engine size, as follows:

Engine size (cc)    Percentage of car's price charged to tax
0 - 1400 16%
1401 - 2000 27%
2001 and more 37%

Higher rates apply where the cylinder capacity has not been registered in cc.

Fuel scale charges

Where the employer pays for any fuel used privately by the employee, there is an additional scale charge based on the CO- based car benefit percentage applied to a standard value of £24,500.

Employee contributions

Where the employee is required, as a condition of the car being made available, to pay for the private use of a car, the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will reduce its list price for tax purposes.

By contrast it is ‘all or nothing' for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel.

HMRC has published advisory fuel only rates which will be accepted either for employers reimbursing employees for the cost of fuel for business mileage, or for employees reimbursing employers for the cost of fuel for private mileage in a company car.

Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle. In this instance, a higher rate per mile might be agreed due to the typically higher fuel consumption, providing it can be shown the cost incurred per mile is higher.

Current mileage rates

1 June 2020

These mileage rates officially apply as of 1 June 2020

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 10p 6p
1401cc to 2000cc 12p 8p
Over 2000cc 17p 11p

 

Engine size Diesel
1600cc or smaller 8p
1601cc to 2000cc 9p
Over 2000cc 12p

1 March 2020

These mileage rates officially apply as of 1 March 2020

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 12p 8p
1401cc to 2000cc 14p 10p
Over 2000cc 20p 14p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 13p

1 December 2019

These mileage rates officially apply as of 1 December 2019

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 12p 8p
1401cc to 2000cc 14p 9p
Over 2000cc 21p 14p

 

Engine size Diesel
1600cc or smaller 9p
1601cc to 2000cc 11p
Over 2000cc 14p

 

1 September 2019

These mileage rates officially apply as of 1 September 2019

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 12p 8p
1401cc to 2000cc 14p 10p
Over 2000cc 21p 14p

 

Engine size Diesel
1600cc or smaller 10p
1601cc to 2000cc 11p
Over 2000cc 14p

 

1 June 2019

These mileage rates officially apply as of 1 June 2019

Advisory fuel only mileage rates
  Rates per mile
Engine size Petrol LPG
1400cc or smaller 12p 8p
1401cc to 2000cc 15p 9p
Over 2000cc 22p 14p

 

Engine size Diesel
1600cc or smaller 10p
1601cc to 2000cc 12p
Over 2000cc 14p

Electric car advisory rate

The Advisory Electricity Rate for a fully electric car is 4p per mile. Electricity is not considered a fuel for the purpose of the car fuel benefit.

For employees using their own transport

The approved maximum tax and national insurance free mileage allowances for employees using their own transport for business are as follows:

Flat rate First 10,000 Miles Miles over 10,000
Car or van 45p 25p
Motorcycle 24p 24p
Bicycle 20p 20p

 

 

 

 

 

 

Tax payable

The company car benefit in kind values are subject to income tax at the basic, higher or additional-rate, depending on the employee's rate of pay. The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.

For the benefit to be attractive, the employee must pay less in extra tax than it would cost them to run their own car out of their taxed income. These are examples of the 2020/21 tax costs to an employee of a company car:

Basic-rate liability example – car registered 6 April 2020 onwards

List Price CO2 emission g/km Tax Rate 20%
Petrol Diesel*
Car Fuel Car Fuel
£13,000 103 £598 £1,108 £702 £1,302
£18,000 147 £1,152 £1,542 £1,296 £1,735
£25,000 220 £1,850 £1,813 £1,850 £1,813

*Assumes liable to 4% surcharge on the assumption it is not RDE2 standard. For RDE2 compliant diesel cars, please use petrol calculations.

Basic rate liability example - car registered pre 6 April 2020

List Price CO2 emission g/km Tax Rate 20%
Petrol Diesel*
Car Fuel Car Fuel
£13,000 103 £650 £1,205 £754 £1,397
£18,000 147 £1,224 £1,638 £1,332 £1,783
£25,000 220 £1,850 £1,813 £1,850 £1,813

*Assumes liable to 4% surcharge on the assumption it is not RDE2 standard. For RDE2 compliant diesel cars, please use petrol calculations.

Higher-rate liability example – car registered 6 April 2020 onwards

List Price CO2 emission g/km Tax Rate 40%
Petrol Diesel*
Car Fuel Car Fuel
£13,000 103 £1,196 £2,217 £1,404 £2,602
£18,000 147 £2,304 £3,136 £2,592 £3,528
£30,000 220 £4,440 £3,626 £4,440 £3,626

*Assumes liable to 4% surcharge on the assumption it is not RDE2 standard. For RDE2 compliant diesel cars, please use petrol calculations.

Higher-rate liability example – car registered pre 6 April 2020

List Price CO2 emission g/km Tax Rate 40%
Petrol Diesel*
Car Fuel Car Fuel
£13,000 103 £1,300 £2,450 £1,508 £2,842
£18,000 147 £2,448 £3,332 £2,664 £3,626
£30,000 220 £4,440 £3,626 £4,440 £3,626

*Assumes liable to 4% surcharge on the assumption it is not RDE2 standard. For RDE2 compliant diesel cars, please use petrol calculations.

Additional-rate liability example (excluding Scotland where the additional rate is 46%) – car registered 6 April 2020 onwards

List Price CO2 emission g/km Tax Rate 45%
Petrol Diesel*
Car Fuel Car Fuel
£13,000 103 £1,345 £2,535 £1,579 £2,976
£18,000 147 £2,592 £3,528 £2,916 £3,969
£40,000 220 £6,660 £4,079 £6,660 £4,079

*Assumes liable to 4% surcharge on the assumption it is not RDE2 standard. For RDE2 compliant diesel cars, please use petrol calculations.

List Price CO2 emission g/km Tax Rate 45%
Petrol Diesel*
Car Fuel Car Fuel
£13,000 103 £1,462 £2,756 £1,696 £3,197
£18,000 147 £2,754 £3,748 £2,997 £4,079
£40,000 220 £6,660 £4,079 £6,660 £4,079

*Assumes liable to 4% surcharge on the assumption it is not RDE2 standard. For RDE2 compliant diesel cars, please use petrol calculations.

Tax-free benefits

    Car Parking

The provision of a car parking space at or near the employee's place of work is not an assessable benefit.

    Pool Cars

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others.

Please note: A pool car must not normally be kept overnight at or near an employee's home.

Business use of an employee's own car

It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own cars.

A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:

Cars and vans
On the first 10,000 miles in the tax year 45p per mile
On each additional mile above this 25p per mile
Motor cycles 24p per mile
Bicycles 20p per mile

It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.

Note that the lower rate for more than 10,000 business miles only applies to income tax. The national insurance rate remains at 45p for any number of miles.

Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D (now possible through RTI payrolling).

Passenger payments

When an employee travelling on business carries fellow employees as passengers he may be reimbursed a further 5p per passenger tax free provided the journey is a business journey in respect of the passengers. No claim can be made if the employer does not make passenger payments.

Company vans

The taxable benefit for the unrestricted use of company vans is £3,350 (with no reduction for older vans) plus a further £633 of taxable benefit if fuel is provided by the employer for private travel. Electric vans are taxed at 40% of the van scale rate (i.e. £1,340).

The tax payable on the use of a company van ranges from £268 to £1,792.35 a year, and the employer's class1A NICs payable ranges from £87.35 to £549.65 a year.

Use our calculator to check your van benefit

Tax-saving checklist

  • Keep adequate records of business mileage.
  • Always check your tax code to see that the correct benefit is being applied.
  • If you have low private mileage, you may be better off if you pay for all your own private fuel.
  • If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
  • Encourage your employer to apply for a P11D dispensation.

Company cars - beyond 2020

The appropriate percentage rates for 2021/22 and 2022/23 have already been announced by the Government. Some headline information includes:

  • Fully electric vehicles (no CO2) will increase by 1% in 2021/22 and a further 1% in 2022/23.
  • All fuel-based cars registered before 6 April 2020 will see no increase in the appropriate percentage rate during 2021/22 or 2022/23.
  • Fuel-based cars registered from 6 April 2020 and with CO2 emissions at 169 or below, will see a 1% increase in the appropriate percentage in 2021/22.
  • Fuel-based cars registered from 6 April 2020 and with CO2 emissions at 164 or below, will see a 1% increase in the appropriate percentage in 2022/23.

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