If you provide your employees with a company car (or fuel) that they can use for personal transport*, then they’ll have to pay company car tax. This is because you’re providing the car in addition to their standard wage, so HM Revenue and Customs will see it as a taxable perk.

*Personal transport includes an employees’ journey between home and work, unless it’s a temporary place of work. So those journeys to the office every day will count.

What is company car tax?

Company car tax is classed as a Benefit-In-Kind, because employees gain a monetary value for using a company car outside of work purposes.

It can sound complicated but, essentially, as company cars aren’t included in standard National Insurance contributions, employees will pay a specific company car tax called the Benefit-In-Kind (BIK) tax.

As an employer, you’ll have to work out the taxable value of the car or fuel so you can report to HM Revenue and Customs. You’ll also have to pay Class 1A National Insurance Contributions, but we’ll get into that in a bit.

How to calculate company car tax

The quickest way to calculate the amount of tax that you’ll pay on a company car is to use HMRC’s company car tax calculator.

You may, however, have to work this out manually – for example if the company car was unavailable for a minimum of 30 consecutive days, or you stopped providing fuel for private use part-way through the year. In either of these cases, you’ll have to work the value out using your P11D form.

To calculate your company car tax, follow these three steps:

  • Start with your company car’s P11D value (covered below)
  • Multiply the P11D value by the car’s company tax rate (which depends on its CO2 emissions) to get your BIK amount
  • Multiply the BIK amount by the employee’s personal tax rate (20%, 40% or 50%) to get the amount of company car tax owed

Working out a car’s P11D value

The amount of company car tax you’ll pay will be a percentage of the car’s list price, or its P11D value, as quoted by the manufacturer.

The P11D value will be the price of the car minus the non-taxable parts like the first year’s road tax and the first registration fee. Remember that the value of the car isn’t the same as its cost. You’ll have to take various factors into consideration, such as any times it was unavailable and the CO2 emissions.

There are 21 CO2 emission bands in total, ranging from vehicles that emit 50g/km of CO2 or less, up to those that produce 180g/km. You can learn more about that here. HM Revenue and Customs will take these emission bands into consideration when working out the company car’s value.

How much company car tax will an employee pay?

As calculated above, the amount of tax an employee pays will depend on their salary. For example, if they they’re on the 20% tax bracket, they’ll pay 20% of the taxable portion of the car’s P11D value.

This should be deducted from their monthly pay if they’re on PAYE.

How much company car tax will an employer pay?

As an employer, you’ll pay Class 1A National Insurance Contributions (NICs) for each company car an employee uses for personal travel. These NICs are also based on the vehicle’s P11D value and BIK rate.

Your NICs will also be dependent upon the annual percentage rate set by the Government’s Budget. It’s currently 13.8%. You’ll use this in the following calculation to work out how much Class 1A NICs are payable:

NIC = P11D value x BIK rate based on CO2 x 13.8%

Company car tax table

Below are the 2018/19 BIK rates you need to be aware of.

CO2 (g/km)Petrol BIK rate (%)Diesel BIK rate (%)
0-501317
51-751620
76-941923
95-992024
100-1042125
105-1092226
110-1142327
115-1192428
120-1242529
125-1292630
130-1342731
135-1392832
140-1442933
145-1493034
150-1543135
155-1593236
160-1643337
165-1693438
170-1743539
175-1793640
180+3741

 

Simplifying company car tax

As you can see, company car tax isn’t the easiest topic to master – although it can get easier with practice.

If numbers aren’t your strong point, or you’d simply rather spend your time finishing a more important job at hand, then take a look at KashFlow Payroll.

Our online payroll software will calculate the Vehicle Benefit and Vehicle Benefit (Fuel) for each relevant employee and add automatic payslip items to the employee’s payslip in all applicable periods.

You can also use the software to calculate the monthly/weekly value of the car allowance benefit, including variations such as the car’s emissions figure (or lack of), engine size, and even calculations for when car is provided mid-way through the year and/or when the employee switches payroll frequencies. In each case, all relevant information will be sent in the FPS for the employee.

To try running company car tax in payroll software, just sign up for a free trial here. There’s no card required and no obligation to buy, so just play around and see if we’re the right fit for you!

See how KashFlow works with your business and your books