If you're an employee in the UK and your employer provides you with a company car, it's essential to understand how this benefit is taxed. The tax you pay is based on the car's value and emissions, among other factors. In this article, we will guide you through the process of calculating the tax on your company car and provide examples for both an electric car and a petrol car with the same list price.
Understanding Benefit-In-Kind (BIK) Tax
The Benefit-In-Kind (BIK) tax is a tax on employees who receive perks or benefits from their employer, such as a company car. The amount of tax you pay depends on the car's value, its CO2 emissions, and your personal income tax rate.
Key Factors in Calculating Company Car Tax
1. Car's List Price (P11D value): The official price of the car, including VAT and any additional accessories.
2. CO2 Emissions: The car's CO2 emissions, measured in grams per kilometre (g/km), determine the car's tax band.
3. Fuel Type: Electric cars and hybrid vehicles are usually taxed less than petrol or diesel cars.
4. Income Tax Rate: Your personal income tax rate (20%, 40%, or 45%) also affects the amount of tax you will pay.
Calculation Steps
1. Determine the P11D Value: This is the list price of the car, including VAT and any delivery charges but excluding the first year’s Vehicle Excise Duty (VED) and registration fee.
2. Find the Appropriate CO2 Emissions Band: Based on the car's CO2 emissions, locate the relevant tax band from the government’s BIK rates table.
3. Calculate the BIK Percentage: Use the CO2 emissions to find the BIK percentage rate.
4. Calculate the BIK Value: Multiply the P11D value by the BIK percentage to get the taxable value of the benefit.
5. Calculate the Annual Tax Payable: Multiply the BIK value by your income tax rate to find the amount of tax you will pay annually.
Worked Examples
Let's consider two cars with the same list price but different fuel types:
- Electric Car: List Price £40,000, CO2 emissions 0 g/km
- Petrol Car: List Price £40,000, CO2 emissions 150 g/km
Example 1: Electric Car
1. P11D Value: £40,000
2. CO2 Emissions Band: 0 g/km
3. BIK Percentage: 2% (for the tax year 2024/25)
4. BIK Value: £40,000 * 2% = £800
5. Annual Tax Payable:
- Basic Rate (20%): £800 * 20% = £160
- Higher Rate (40%): £800 * 40% = £320
- Additional Rate (45%): £800 * 45% = £360
Example 2: Petrol Car
1. P11D Value: £40,000
2. CO2 Emissions Band: 150 g/km
3. BIK Percentage: 35% (for the tax year 2024/25)
4. BIK Value: £40,000 * 35% = £14,000
5. Annual Tax Payable:
- Basic Rate (20%): £14,000 * 20% = £2,800
- Higher Rate (40%): £14,000 * 40% = £5,600
- Additional Rate (45%): £14,000 * 45% = £6,300
Summary
The tax on a company car can vary significantly depending on the car’s CO2 emissions and your income tax rate. Electric cars benefit from lower BIK rates, making them a more tax-efficient option compared to petrol or diesel cars. By following the steps outlined above, you can estimate the tax payable on your company car and make informed decisions about your vehicle choices.