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How to Calculate Company Car Tax
Tax incentives have created a strong market for electric and plug-in hybrid company cars in the UK. But how does it all work?
What is company car tax?
Company cars are a long-standing employee perk in the UK, but there are some financial strings attached. If your employer provides you with a car which is available for private journeys, then both of you will pay tax on it as a benefit-in-kind (BiK) – a workplace benefit alongside your salary. There are around 720,000 company car drivers in the UK, according to the latest HMRC data, with a combined tax bill of £3.95bn [1].
The company car tax (CCT) regime has been an important lever for behavioural change. Incentives encouraging drivers to choose low-CO2 vehicles were introduced in 2002 [2], doubling the take-up of diesel cars within two years [3] and fuelling demand for plug-in hybrids a decade later. The latest system of bands which came into force in April 2020 [4], have had a similar effect on battery-electric vehicles.
How does the company car tax system work?
Company car tax is influenced by four factors:
- List price (P11d), including non-standard options, VAT, delivery and inspection costs, but excludes the registration fee and first-year vehicle excise duty.
- CO2 emissions, which have been based on the tougher new WLTP test cycle since April 2020.
- Electric range for vehicles with CO2 emissions between 1g/km and 50g/km. This applies to most plug-in hybrids.
- The driver’s income tax band, usually 20% or 40% in England, Wales and Northern Ireland. Scotland has different bands.
The CO2-weighted tax bands were revised in April 2020, including incentives for vehicles emitting 50g/km or less. These are in place until at least April 2028 [6], offering significant tax advantages for the duration of a typical three-year lease.
Rates for the next four financial years are as follows:
CO2 (g/km) | EV Range (miles) | Company Car Tax Band | |||
|---|---|---|---|---|---|
2024-25 | 2025-26 | 2026-27 | 2027-28 | ||
0 | Any | 2% | 3% | 4% | 5% |
0-50 | >130 | 2% | 3% | 4% | 5% |
0-50 | 70-129 | 5% | 6% | 7% | 8% |
0-50 | 40-69 | 8% | 9% | 10% | 11% |
0-50 | 30-39 | 12% | 13% | 14% | 15% |
0-50 | <30% | 14% | 15% | 16% | 17% |
51-54 | 15% | 16% | 17% | 18% | |
55-59 | 16% | 17% | 18% | 19% | |
60-64 | 17% | 18% | 19% | 20% | |
65-69 | 18% | 19% | 20% | 21% | |
70-74 | 19% | 20% | 21% | 21% | |
75-79 | 20% | 21% | 21% | 21% | |
80-84 | 21% | 22% | 22% | 22% | |
85-89 | 22% | 23% | 23% | 23% | |
90-94 | 23% | 24% | 24% | 24% | |
95-99 | 24% | 25% | 25% | 25% | |
100-104 | 25% | 26% | 26% | 26% | |
105-109 | 26% | 27% | 27% | 27% | |
110-114 | 27% | 28% | 28% | 28% | |
115-119 | 28% | 29% | 29% | 29% | |
120-124 | 29% | 30% | 30% | 30% | |
125-129 | 30% | 31% | 31% | 31% | |
130-134 | 31% | 32% | 32% | 32% | |
135-139 | 32% | 33% | 33% | 33% | |
140-144 | 33% | 34% | 34% | 34% | |
145-149 | 34% | 35% | 35% | 35% | |
150-154 | 35% | 36% | 36% | 36% | |
155-159 | 36% | 37% | 37% | 37% | |
160+ | 37% | 37% | 37% | 37% |
What does this actually cost?
The start point is calculating the vehicle’s taxable value, using the list price (P11d) and CO2-based tax bands above.
For the following worked example, we’ve compared three cars with a list price of £35,000. One diesel (130g/km CO2), one plug-in hybrid (30g/km CO2, 35-mile EV range) and an electric car (0g/km CO2). The taxable value is calculated as follows:
- Electric: £35,000 (P11d) x 0.02 (2024/25 tax band) = £700 (taxable value)
- PHEV: £35,000 (P11d) x 0.12 (2024/25 tax band) = £4,200 (taxable value)
- Diesel: £35,000 (P11d) x 0.31 (2024/25 tax band) = £10,850 (taxable value)
Drivers pay Benefit-in-Kind based on their income tax rate; typically either a basic rate of 20% (annual income between £12,571 and £50,270), or a higher rate of 40% (annual income between £50,271 and £150,000). This is taken out of their monthly pay.
Benefit-in-Kind costs
Benefit-in-Kind costs: 20% taxpayer
- Electric: £700 (taxable value) x 0.20 (income tax rate) = £140 (£11.67 per month)
- Hybrid: £4,200 (taxable value) x 0.20 (income tax rate) = £840 (£70 per month)
- Diesel: £10,850 (taxable value) x 0.20 (income tax rate) = £2,170 (£180.83 per month)
Benefit-in-Kind costs: 40% taxpayer
- Electric: £700 (taxable value) x 0.40 (income tax rate) = £280 (£23.33 per month)
- Hybrid: £4,200 (taxable value) x 0.40 (income tax rate) = £1,680 (£140 per month)
- Diesel: £10,850 (taxable value) x 0.40 (income tax rate) = £4,340 (£361.67 per month)** **
Employers pay annual Class 1A National Insurance Contributions (NICs) if they provide company cars to employees. These are charged at a flat rate of 13.8% [7] and costs are calculated as follows:
- Electric: £700 (taxable value) x 0.138 (NIC rate) = £96.60
- PHEV: £4,200 (taxable value) x 0.138 (NIC rate) = £579.60
- Diesel: £10,850 (taxable value) x 0.138 (NIC rate) = £1,497.30
Want to know more about company car tax?
Our team can help discuss the facts you need to make the right decisions for your fleet, and make sure you’re prepared for future changes. For further information please speak to your LeasePlan Account Manager, alternatively contact a member of the LeasePlan Consultancy Services team by emailing consultancyservices@leaseplan.co.uk
REFERENCES:
[1] HM Revenue & Customs. (2023). Benefits in Kind Statistics Commentary June 2023. [online] Available at: https://www.gov.uk/government/statistics/benefits-in-kind-statistics-june-2023/benefit-in-kind-statistics-commentary-june-2023 [Accessed 31 May 2024].
[2] HM Revenue & Customs. (2019). Company car tax rules: 2013 to 2020. [online] Available at: https://www.gov.uk/government/statistics/taxable-benefits-in-kind-and-expenses-payments-company-car-tax-rules-2005-to-2016 [Accessed 31 May 2024].
[3] HM Revenue & Customs. (2006). Report on the Evaluation of the Company Car Tax Reform: Stage 2. [online] Available at: https://webarchive.nationalarchives.gov.uk/20100202231351/http://www.hmrc.gov.uk/cars/stage-2-evaluation.pdf [Accessed 31 May 2024].
[4] HM Revenue & Customs. (2021). Company car benefit – the appropriate percentage (480: Appendix 2). [online] Available at: https://www.gov.uk/guidance/company-car-benefit-the-appropriate-percentage-480-appendix-2 [Accessed 31 May 2024].
[5] HM Treasury. (2020). Budget 2020. [online] Available at: https://www.gov.uk/government/publications/budget-2020-documents/budget-2020 [Accessed 31 May 2024].
[6] HM Treasury. (2022). Autumn Statement 2022. [online] Available at: https://www.gov.uk/government/publications/autumn-statement-2022-documents/autumn-statement-2022-html [Accessed 31 May 2024].
[7] HM Revenue & Customs. (2014). National Insurance rates and categories. [online] GOV.UK. Available at: https://www.gov.uk/national-insurance-rates-letters [Accessed 31 May 2024].
Important information:
This blog was originally published on leaseplan.com website. The views expressed may no longer be current and any reference to specific vehicles or products is for reference only. This information is not a personal recommendation for any particular vehicle, product or service - if you are unsure about the suitability of a product, you should consult with an expert.
Important information:
This blog was originally published on leaseplan.com website. The views expressed may no longer be current and any reference to specific vehicles or products is for reference only. This information is not a personal recommendation for any particular vehicle, product or service - if you are unsure about the suitability of a product, you should consult with an expert.
Important information:
This blog was originally published on leaseplan.com website. The views expressed may no longer be current and any reference to specific vehicles or products is for reference only. This information is not a personal recommendation for any particular vehicle, product or service - if you are unsure about the suitability of a product, you should consult with an expert.
Important information:
This blog was originally published on leaseplan.com website. The views expressed may no longer be current and any reference to specific vehicles or products is for reference only. This information is not a personal recommendation for any particular vehicle, product or service - if you are unsure about the suitability of a product, you should consult with an expert.
