On this page you will find details how car taxation effects the employee, P11D, Co2 emissions, Benefit in Kind taxation (BIK)
The government works closely with the vehicle manufacturers to provide the latest Fuel Consumption and CO2 Emissions figures for all of the vehicles currently available.
Under the current system , Company and employee company car tax are both based on a percentage of the official price of the car . This is referred to as the P11D value. The percentage being primarily determined by the cars CO2 emissions. For the employee , the Benefit in kind (BIK) is then calculated at the appropriate personal tax rate. This is usually collected via PAYE.
The P11D value includes the list price of the car, delivery charges and any optional extras including metallic paint. Road Fund Licence and 1st Registration Fee are excluded . The official CO2 should then be rounded down to the nearest band, see below, and the percentage obtained. Currently there is a 3% surcharge for all diesel engine cars but this is under review.
Current company car BIK rates start at 22% for petrol and RDE2 compliant diesel cars, the rate increasing in up to 1% increments as CO2 bands rise, up to a maximum of 37%. From 06 April 2018, to account for the greater level of NOx emissions, a 4% diesel car tax supplement is payable which applies for non-RDE2 compliant diesels, the vast majority of current diesel models.
All hybrid cars receive a reduced BIK rate as a result of their lower CO2 emissions, which tends to reduce their BIK rates by at least 2%. Note that for diesel hybrids, the 4% diesel surcharge does not apply, since they are not classed as diesel-powered cars, but alternatively fuelled vehicles for tax purposes.
Electric vehicles are also rewarded with lower BIK rates with battery electric cars BIK-rated at 16% for FY 2019/20, reducing to 0% during 2020/21, and then increasing to 1% and 2% for years 2021/22 and 2022/23 respectively.
From April 2020, new BIK bands come into force for plug-in models with CO2 emissions of 1-50 g/km, with the new BIK levels dependent on the official electric-only range in miles. Those with a range in excess of 130 miles are classed as pure-electric models for the purposes of BIK ratings (at 0%) , while those plug-in models with a range of less than 30 miles will be rated at 14%.
The table below shows how the percentage BIK rates vary with vehicle CO2 and electric-only range. The table represents petrol, diesel and electric related BIK rates for 2020-2023. Note that the below table for cars set to be registered post April 2020and uses WLTP-derived CO2 BIK rates, for models registered from April 2020.
|Vehicle CO2 (g/km)||Electric range (miles)||2020-21 %||2021-22 %||2022-23 %|
Electric, RDE2 Diesel
|Non- RDE2 Diesel**||Petrol,
Electric, RDE2 Diesel
|Non- RDE2 Diesel**||Petrol,
Electric, RDE2 Diesel
|Non- RDE2 Diesel**|
|.1 – 50||>130||0||1||2|
|.1 – 50||70-129||3||4||5|
|.1 – 50||40-69||6||7||8|
|.1 – 50||30-39||10||11||12|
|.1 – 50||<30||12||13||14|
** Rate applies to diesel vehicles not meeting the RDE2 standard. For diesel-hybrids, the Non-RDE2 4% diesel surcharge does not apply. All BIK rates apply to cars registered since 1998. Source: HMRC 2019.
From April 2018, HM Treasury levied a 4% diesel supplement over petrol models to account for greater levels of NOx emissions for the majority of current diesel cars. The supplement applies to diesel cars not compliant with the Real Driving Emissions Step 2 (RDE2) test, which confirms that real-world emissions are close to, or better than, the current Euro 6 emissions standards for NOx.
The RDE2 test was developed in response to the Volkswagen emissions scandal and other subsequent research which shows that even the latest Euro 6 models are associated with higher NOx emissions when driven on real roads as compared to the official test which is conducted on a rolling-road in a laboratory.
As of the start of 2018, no diesel models have yet passed the RDE2 test as the procedure itself is under final review. However, new diesel models are expected to be submitted to the test from April 2018. As RDE2 compliant models become available on the UK market, Next Green Car’s tax calculators will automatically remove the 4% supplement where applicable.
Take this percentage of the P11D price to get the taxable Benefit In Kind (BIK).
The amount of tax you will pay then depends on your highest tax band 20%, 40%. or 45%
Every car has a BIK percentage band. This is based on CO2 emissions, and a P11D value, which is the list price, including extras and VAT, but without the first-year registration fee and vehicle tax.
Using the table above, multiple the P11D value of the vehicle by the car (BIK) tax band percentage rate then, multiply that figure by your marginal rate of tax (20% or 40%).
Example – BMW 1 SERIES HATCHBACK 118i M Sport 5dr
Co2 Emissions of 140 equates to a Taxable Percentage of 31%
Multiple £27,0..05 (P11D Value standard car) by 31 % (Taxable Percentage) = BIK Value = £8,372
Then multiple BIK Value by your tax band:
Tax payable 20%: = £1,674. Pa ( £140 pm )
Tax payable 40%: = £3,349pa ( £279 )
Should the CO2 emissions of your company car fall between CO2 bandings, simply round the number down to work out the company car tax band that applies
If you would like further information, clarifications of any of the issues or a more personal calculation please contact us.
Company car fuel benefit is charged unless the cost of all fuel for private use is borne by the employee. The taxable benefit is calculated by applying the appropriate percentage to the car fuel benefit charge multiplier, which is £23,400 in 2018/19.
Where VAT is to be reclaimed on fuel for private use, the employer also has to account for output tax based on a flat rate charge derived from the vehicle’s CO2 emissions.
No fuel benefit charge can arise if an employer provides a facility to supply or directly supplies electricity for a car as HMRC does not regard electricity to be a fuel.
We suggest you ensure that you are not paying more in taxation than the actual cost of the private fuel used. This will depend on your rate of tax and the fuel consumption of the vehicle as well the amount of private miles you travel. You can buy a lot of ‘free’ fuel for £147 per month! Don’t forget your employer is still having to pay for the fuel and also National Insurance on your Car Fuel Benefit so you could all be better off by not having free fuel at all.
As mentioned above regular commuting from your home to your normal place of work is counted as private mileage. The rules regarding these aspects are quite complex especially if you are on secondment or travel to various sites. Please feel free to contact us to discuss for further clarification or receive our free calculation spread sheet.
To calculate how much fuel benefit you’ll have to pay, you need to calculate the vehicle’s benefit in kind with a fuel charge multiplier.
The benefit in kind or BIK tax is evaluated by multiplying the car’s CO2 emission level, the value of the car when new – including any modifications – and your income tax bracket. If you’re unsure how to calculate your tax rate, please contact us.
To work out if the company car fuel benefit is worth it, make this calculation to see how much tax you’ll need to pay annually:
Your BIK percentage multiplied with £23,400 for the 2019/2019 tax year. This car tax multiplier can change each year and the rate is controlled by HMRC.
If your BIK percentage was 25%, as your petrol vehicle falls into the 105-109 CO2 bracket, then you’d multiply 25% by 23,400 to reach £5,850.
Reduce the £5,850 figure by multiplying it by your tax margin, which is typically either 20% or 40%.
£5850 x 20% = £1170 tax payable.
If you are spending under £1170 a year on fuel then the car fuel benefit is perhaps not worth it, as you’d still have to pay the calculated amount.
This all depends on how many miles you’re clocking up on your company car.
If you are on average paying out more for fuel than the car fuel benefit amount, then having a company car and receiving free fuel is worth it. But, if you don’t spend that much on fuel, then you’d actually be paying more with this benefit.
By going down this route you have no taxable BIK and hence save yourself the taxation every month, your salary cheque will be larger due to less tax payable but you do not have a car!
Your employer will usually offer you additional salary to compensate and could also offer you ‘pence per mile’ (PPM) for your business mileage. This amount could vary between just sufficient to cover the cost of the actual fuel used or could be more generous and would in fact make a contribution to the running costs. The added salary will be taxable but the PPM payment for business mileage is tax free up to certain limits set by the Inland Revenue each year. These are known as Approved Mileage Allowance Payments.
Remember! Now you don’t have a company car it will be down to you to purchase, maintain and service the car. You will also have to pay the Road Fund Licence and insurance (this will also have to cover you for business use). You will have to pay the financing charges and suffer the loss in value over the period, purchase tyres, roadside assistance and of course the fuel itself. Don’t underestimate the cost of all of this. Although you will be saving benefit in kind tax, this, along with your net salary increase and any contribution via payment for business mileage, will need to cover all these costs.
These are the maximum amounts that can be received without paying tax or NIC. If you receive less than the stated maximums the difference can be claimed as Mileage Allowance Relief. This can be done within your self-assessment tax return at the end of the tax year but can also be built into your tax code, so that you receive the benefit now.
Currently the maximum amounts you can receive tax-free are:
|Business Miles||Per Mile|
|Up to 10,000||0.45p|
By offering a company car to any employee earning more than £8,500 pa or any director, it will mean that they will incur a taxable Benefit in Kind (BIK) – for further details see Car Taxation – Employee, as an alternative you could offer your employees an increase in salary to ‘opt out’ and purchase their own cars, this could mean the company makes savings on:-
But you have to consider what will you need to offer your employees:
Additional salary – the net amount after tax, plus the savings they will make by not paying Benefit in Kind tax will need to be sufficient for them to fully run a car on contract including maintenance, insurance etc. to be able keep them as satisfied employees.
We find most employees ‘dissatisfaction’ with any company car scheme is the fact that they feel they are paying too much tax – most forget that the Inland Revenue would most probably take as much, if not more, from any increase in salary – a well researched lower emission vehicle may be all that is required to halve their tax bill as well as reduce your NI bill and possibly increase the amount of Capital Allowances you can offset against Corporation Tax.
Are you still offering this to your employees? Are you aware how much this costs, the driver and you? The Government have purposely made this benefit very expensive as they feel this encourages driving unnecessary miles and hence increases Co2 and your carbon footprint. In practice it could be cheaper for your employee NOT to have free fuel, straight away dramatically decreasing these tax bills and could also save you all the cost of the fuel and National Insurance!
Health and Safety regulations mean that you, as the employer, are still legally responsible for the safety of their car. How will you check that the car is safe and regularly serviced? As well as the implications of the Corporate Manslaughter and Corporate Homicide Act
Please feel free to contact us to discuss your options.
Anyone whose personal use of a van is purely incidental, does not have to pay any BIK.
If personal use is allowed you will then pay tax based on a flat rate BIK of £3,000 plus £564 if you receive free personal fuel.
Incidental use is not 100% clarified by the Inland Revenue but, for instance, whereas parking your company car at home (where you at least have the ability to drive on personal use) would involve a BIK charge, driving your company van between home and work will not incur a charge.
The definition of commercial vehicle always used to be clear cut – 1 row of seats and no side windows behind the driver. When double cab pick-ups and vans entered the market, for a time, technically, they would not have been seen as commercial vehicles.
In 2000 this was clarified and they are now classed as a commercial vehicle even with rear seats and side windows, as long as they have the ability to carry 1 tonne, (all double cabs in the UK will have been built to this criteria) and are built primarily to carry goods rather than passengers.
On this page you will be able to find information regarding cars and commercials (vans) and the effect on them of VAT. This page will cover the basics, for any more complicated questions please feel free to telephone us.
When someone purchases a car, VAT is included in the price @20%. Unless you can prove to the Inland Revenue that the vehicle is used 100% for business use, no VAT is reclaimable. 100% business use is not easy to prove and is normally only achieved by such businesses as driving schools and self-drive hire companies etc. A comprehensive mileage log needs to be maintained showing every trip, the vehicle must be a pool car and can’t be allocated to one individual and the vehicle must always be kept at the business premises i.e. never stored at the directors or employees home.
These rules affect all methods of purchase where ownership is gained, or can be, i.e. payment in cash, bank or other loan, Hire Purchase (HP) fixed or variable rate Balance Payments, Lease Purchase (LP), Personal Contract Purchase (PCP), Contract Purchase (CP).
When a vehicle is leased the leasing company purchases the car – obviously they will not use the car personally so for them it is 100% business use and they will reclaim the VAT. When you lease from them they will calculate the figures based on the pre-VAT price and then charge you VAT on the monthly rentals.
Inland Revenue rules allow 100% reclaim of VAT on leased vehicles for 100% business use but they will also allow 50% VAT reclaim even if there is personal use – this can be a major benefit being able to claim 50% of the VAT which you couldn’t claim back if the car was purchased.
These rules affect all methods of Leasing – long term rental – where the hirer can never gain ownership, i.e. Finance Lease, also known as: Leasing, Car Leasing, fixed period Lease, Lease, Lease Hire, Lease Rental – many names for the same thing, and Operating Lease, which, for vehicles, is always referred to as Contract Hire.
Historically a commercial vehicle was defined as having one row of seats, no windows behind the driver and predominantly used for the delivery of goods. Double Cab Pickups and vans broke this rule and for some time they were defined as passenger cars. This has now been clarified and they are now classed as commercial vehicles as long as they have a carrying capacity of at least 1 tonne and are built to primarily carry goods rather than passengers.
Irrespective of whether you purchase a van and ownership is gained (using cash or loan, Hire Purchase – HP, fixed or variable rate Balance Payments, or Lease Purchase – LP) OR Lease a van using Finance Lease or Contract Hire, you can claim 100% of the VAT.
You should note that Her Majesty’s Revenue and Customs (HMRC) can restrict the percentage of VAT you claim on a commercial vehicle to the actual percentage of business to total miles – this can be particularly important to drivers of Double Cabs.
|Purchase / Lease||Any Personal use||100% Business use|
|Purchase of a car – Cash – HP – LP etc||NIL||100%|
|Lease of a car||50%||100%|
|Purchase of a commercial vehicle||100%*||100%|
|Lease of a commercial vehicle||100%*||100%|
All information can be obtained from Inland Revenue. E&EO
Information obtained from www.Gov.uk
All information on this page is for illustration only. ecofleet accept no liability / responsibility regarding the contents of this page. E &EO
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