To mangle an old saying, only two things are certain in this world: death and company car tax. You can't avoid the first, and however hard you try to dodge the second, you'll always end up paying something.
Of course, this assumes you have a company car, but with around 700,000 people in receipt of one, the chances are reasonably high that you do.
To the tax man, a company car is a cash cow: in the tax year 2021/22, the total taxable value of company car benefit amounted to £3.95 billion. However, to misappropriate another phrase, the times they are a-changin'.
Two words: electric cars. These attract much less tax than petrol and diesel cars, which is why they have become such a hit with company car drivers.
In the tax year 2021/22, for example, the number of recipients of company cars with CO2 emissions of 75g/km or less was 243,000, compared with 137,000 in the previous tax year, and fully electric cars accounted for 17% of car benefit recipients. That was three years ago, since when the proportion of company EVs has increased dramatically thanks to their growing popularity and initiatives such as salary sacrifice.
In short, the tax man is losing money, but he's not about to give up without a fight. Here, then, is how to leave the ring with your shirt on.
What is a company car?
It's a car given to you by your employer in addition to your salary and which you can use for private as well as business journeys. Private use includes commuting.
What is company car tax?
It's a tax on a benefit, in this case a car. You may think the vehicle is separate from your salary, but to the tax man it's simply another form of payment – which means its ripe for taxing. It's why the Inland Revenue calls it a benefit-in-kind tax.
How is company car tax calculated?
The tax is based on a combination of the car’s list price including VAT and extras (together called the P11d value), multiplied by the vehicle's official CO2 emissions expressed as a percentage and known as the BIK rate. The result, multiplied by the employee's personal tax band, is the amount of tax the employee must pay on the car.
BIK rates range from a high of 37% for cars emitting more than 170g/km CO2 to 2% for those emitting no CO2. For hybrids, the vehicle's battery-only range is also a factor in determining the BIK rate. A 4% surcharge applies to diesel vehicles not meeting the latest RDE2 emissions standard.
Example:
P11D value of the car: £20,000CO2 emissions: 95g/kmFuel type: PetrolCar's BIK rate: 24%User's personal tax band: 20%Car's BIK value (P11d x BIK rate): £4800Tax charge (BIK value x personal tax band): £960 a year or £80 per month
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