How do I calculate tax on a company car?

How do I calculate tax on a company car?

If you’re wondering how to calculate tax on a company car, then you’ve come to the right place.

Working out company car tax can be a daunting prospect, and with new taxation bands brought into place for the 2021 / 2022 financial year, even if you have submitted tax information on your company car before, it’ll be worth reading this article to brush up on your knowledge and the latest guidance.

What company cars are taxed?

A company car is any fleet vehicle that is used by the owner for private use, which includes commuting, even if it’s one private trip per year.

All company cars are viewed by HMRC as a Benefit-in-Kind (BIK), meaning they’re taxable.

The rates of tax that you will pay are determined by which tax bracket your salary puts you in and the car's value, plus its carbon dioxide emissions.

As an employee, your tax is calculated using the following formula: (P11D value) x (BiK band) x (tax bracket).Your P11D value is the sum of its list price, cost of delivery, VAT and any optional extras (but doesn’t include road tax or first-year registration fees).This is multiplied by a Benefit-in-Kind (BiK) band percentage, which is determined by its CO2 emissions.The final figure you will pay is worked out by multiplying the above by your income tax band. For example, if the P11D value of your car is £25,000, it’s a zero emission vehicle (1% tax) and you’re in the 20% tax bracket in England and Wales (Bracket 2), you will pay £50.£25,000 X 0.001 X 2 = £50

Like most tax systems, Benefit-in-Kind rates are subject to change when the chancellor annually reviews the rates. This will likely mean these tax bands and rates increase overtime and will once again be reviewed ahead of the new financial year.

Company car tax in 2021 – 2022

New taxation bands came in for 2021/22 and there’s plenty to get your head around. We have simplified everything for you here.

The tax rates continue to be derived from the WLTP (World harmonised Light vehicle Test Procedure) emission tests. These tests put newer cars through tougher criteria than the old NEDC tests and are intended to be more representative of a car's real-world performance. The test includes a Real Driving Emissions test (RDE2) which takes place on the road and complements the lab based WLTP tests.

The taxation bands based on emissions are here;

Cars registered before 6 April 2020:

CO2	Electric range (miles)	2020-21 (%)	2021-22 (%)	2022-23 (%)	2023/24 (%)	2024/25 (%)
0	N/A	0	1	2	2	2
1-50	<130	2	2	2	2	2
1-50	70-129	5	5	5	5	5
1-50	40-69	8	8	8	8	8
1-50	30-39	12	12	12	12	12
1-50	<30	14	14	14	14	14
51-54		15	15	15	14	14
55-59		16	16	16	16	16
60-64		17	17	17	17	17
65-69		18	18	18	18	18
70-74		19	19	19	19	19
75-79		20	20	20	20	20
80-84		21	21	21	21	21
85-89		22	22	22	22	22
90-94		23	23	23	23	23
95-99		24	24	24	24	24
100-104		25	25	25	25	25
105-109		26	26	26	26	26
110-114		27	27	27	27	27
115-119		28	28	28	28	28
120-124		29	29	29	29	29
125-129		30	30	30	30	30
130-134		31	31	31	31	31
135-139		32	32	32	32	32
140-144		33	33	33	33	33
145-149		34	34	34	34	34
150-154		35	35	35	35	35
155-159		36	36	36	36	36
160+		37	37	37	37	37

Cars registered from 6 April 2020:

CO2 (g/km)	Electric range (miles)	2020-21 (%)	2021-22 (%)	2022-23 (%)	2023/24 (%)	2024/25 (%)
0	N/A	0	1	2	2	2
1-50	<130	0	1	2	2	2
1-50	70-129	3	4	5	5	5
1-50	40-49	6	7	8	8	8
1-50	30-39	10	11	12	12	12
1-50	<30	12	13	14	14	14
51-54		13	14	15	15	15
55-59		14	15	16	16	16
60-64		15	16	17	17	17
65-69		16	17	18	18	18
70-74		17	18	19	19	19
75-79		18	19	20	20	20
80-84		19	20	21	21	21
85-89		20	21	22	22	22
90-94		21	22	23	23	23
95-99		22	23	24	24	24
100-104		23	24	25	25	25
105-109		24	25	26	26	26
110-114		25	26	27	27	27
115-119		26	27	28	27	27
120-224		27	28	29	29	29
125-129		28	29	30	30	30
130-134		29	30	31	31	31
135-139		30	31	32	32	32
140-144		31	32	33	33	33
145-149		32	33	34	34	34
150-154		33	34	35	35	35
160-164		35	36	37	37	37
165-169		36	37	37	37	37
170+		37	37	37	37	37

Do electric cars get taxed?

Fully electric company cars are in the lowest emissions bracket and therefore are exempt from Vehicle Excise Duty (car tax) but you will still have to pay Benefit-in-Kind (BiK) tax as the employee.

The BiK rate for zero emission company cars increased from 0% to 1% in April 2021 so car tax bills will still be minimal.

To work out how much car tax you will pay, used the following formula: (P11D value) x (BiK band) x (tax bracket).

Do petrol and diesel cars get taxed?

Yes. All petrol and diesel cars get taxed. Newer models in particular can qualify for lower tax bands given they have cleaner engines as technology has developed.

Diesel cars not meeting the RDE2 element of WLTP tests will continue to be subject to a four per cent higher BiK rate than petrol cars. Most newer diesels are RDE2-compliant cars, now, though.

Do hybrid cars get taxed?

Plug in hybrids (PHEVs) have a lower tax band than regular hybrids and are in substantially lower bands than vehicles that are powered solely by petrol or diesel.The amount of tax a company will pay depends on the P11D value of the car (see above) and its CO2 emissions. Ultimately, a low value car with zero emissions will pay minimal tax.If a hybrid emits 1-50g/km then it will be in the second lowest emissions bracket. In today’s market it’s only PHEVs that achieve this low emissions standard and not regular hybrids. Theoretically, PHEVs could qualify for the lowest (0g emissions) bracket, but in order to do so, they must have an electric range of >130 miles. There is no PHEV on the market which is close to achieving this in 2021.

How do I calculate tax on a company car?

Find out how to tax your company car in the 2021 / 2022 financial year, how you can calculate your tax and what cars are eligible for tax discounts

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