Company car tax rates

Everything you need to know about company car tax (BIK) rates, tax tables, and changes coming in 2020, that will cut electric car rates

BuyaCar team
Mar 27, 2019

Company car tax is changing, with new rules that could save you thousands of pounds each year - as long as you choose the right vehicle.

From next year, company car tax on electric cars and some hybrid models will be slashed, making battery-powered models by far the cheapest choice for business users. The difference in tax between a £40,000 electric car and £40,000 diesel car for a higher-rate taxpayer could easily be £5,000 per year.

These rules will apply to vehicles bought now so, more than ever, it pays to understand the rules and ensure that your next company car qualifies for the lowest possible tax rate.

You'll find a full guide to company car tax below, starting with the basics. To jump to details of next year's changes, including a table of tax bands, click here.

 

What is company car tax?

Just as there's no such thing as a free lunch, a free car doesn't exist either - especially if it's provided by your employer.

Company cars are seen as benefits, or perks, by the taxman and, as a result, attract tax. That's why they are known as a benefit-in-kind (BIK). it doesn't matter whether the car is bought outright, financed or leased by your firm: if it's classed as a company car, the tax is the same. 

The tax rate that you pay is based on four elements:

  • The car's list price, before any discounts, which is known as its P11D value. You'll pay tax on a proportion of this.
  • That proportion is based on your car's carbon dioxide (CO2) emissions. The lower the car's CO2 output, the less you'll pay - a policy designed to promote green cars.
  • Fuel: most diesel cars are taxed at a higher rate.
  • Your personal tax rate will affect your company car tax bill.

From next year, the rate of tax for electric cars and some hybrid models will drop dramatically, making these substantially cheaper to run for most business users.

Scroll down for details of company car tax rules, including how to calculate the amount you will be charged and a full table of tax bands, showing how diesel, petrol and electric cars compare. 

There's a glossary at the bottom if you need further explanation of key terms.

 

Calculating company car tax

1. The car’s value
In almost every case, the starting point is the list price of a car when it was new. It doesn’t matter whether it's brand new or second hand, and discounts are disregarded too. The tax is based on the recommended retail price when it was first registered.

Any additional options that were fitted are added to this price, which also includes VAT but not car tax. This price is often known as the car’s P11D value - named after the tax form used by employers to document company car benefits.

2. CO2 emissions
Each year you pay tax on a proportion of a car’s list price, known as its taxable value. The size of this depends on the amount of CO2 it produces from its exhaust.

There are 20 CO2-based tax bands, which are shown below. The lower the CO2, the lower your tax band. Owners of cars that emit little to no CO2 (such as electric and hybrid vehicles) pay tax on 16 per cent of their value. For those with the most polluting vehicles, that proportion can be as high as 37 per cent.

The current bands apply to all modern cars - not just those built this year - and tax generally increases each year. Electric cars and some hybrid models will see a large tax cut next year, though.

3. Fuel
Most diesel cars have a company car tax rate that’s 4 per cent higher than other vehicles. However, the very cleanest cars, which meet the very toughest emission standard, known as Euro 6d avoid this surcharge.

4. Your personal tax rate
 The final stage in calculating your company car tax is applying your income tax rate to the car’s taxable value.

 

Calculating company car tax: example

1. The car's value
Order a brand new petrol car costing £27,000 and add £3,000-worth of additional equipment
Its P11D value is £30,000

2. CO2 emissions
The car emits 118g/km of CO2. Based on the tax band table, this means that the company car tax rate is 27%
Your car’s taxable value, based on 27% of its brand new cost is £8,100

3. Fuel
As it's a petrol car, the tax rate remains at 27%. The rate for most diesel cars with the same CO2 emissions would be 4% higher

4. Your personal tax rate
 
Your income tax rate is applied to the taxable value. In this example, we're assuming a rate of 20%.
20% of £8,100 = £1620: your final tax bill

 

Company car tax bands table 2019/20

CO2 emissions (g/km)

2019/20 taxable value

0-50g/km

16% (Diesel: 20%)

51-75g/km

19% (Diesel: 23%)

76-94g/km

22% (Diesel: 26%)

95-99g/km

23% (Diesel: 27%)

100-104g/km

24% (Diesel: 28%)

105-109g/km

25% (Diesel: 29%)

110-114g/km

26% (Diesel: 30%)

115-119g/km

27% (Diesel: 31%)

120-124g/km

28% (Diesel: 32%)

125-129g/km

29% (Diesel: 33%)

130-134g/km

30% (Diesel: 34%)

135-139g/km

31% (Diesel: 35%)

140-144g/km

32% (Diesel: 36%)

145-149g/km

33% (Diesel: 37%)

150-154g/km

34% (Diesel: 37%)

155-159g/km

35% (Diesel: 37%)

160-164g/km

36% (Diesel: 37%)

165-169g/km

37% (Diesel: 37%)

170-174g/km

37% (Diesel: 37%)

175-179g/km

37% (Diesel: 37%)

180-184g/km

37% (Diesel: 37%)

185-189g/km

37% (Diesel: 37%)

190g/km or more

37% (Diesel: 37%)

Company car tax 2020/21 changes

Electric and hybrid cars

Cars that can run entirely on battery power will get a big company car tax cut next year Full electric cars currently have a BIK rate of 16 per cent, which will drop to 2 per cent next year.

  • If you're driving a Nissan Leaf Tekna, that will cut the company car tax bill of a 20 per cent taxpayer from around £990 per year to £124.
  • The bill for a 40% taxpayer with a Jaguar I-Pace HSE or Tesla Model S Long Range owner will drop from almost £5,000 a year to around £600.

Company car tax on plug-in hybrid cars will also be cut - in some circumstances. These cars combine large batteries that can be charged up, with a conventional engine. Models that can drive for more than 40 miles on electric power, without any engine input will benefit from a tax rate of less than 10 per cent (and as low as 2 per cent if they have a 130 mile electric range). Those with a range of under 30 miles will face a 14 per cent BIK rate.

CO2 emission figures

Changes to the way that CO2 emissions are calculated are likely to mean that tax rates go up for new cars that are sold after April 2020. So getting a company car before that date could save you money for several years.

This has come about because official CO2 figures are generated during a standard laboratory test that every new type of car must go through.

For years this test, called NEDC, remained the same and increasingly produced results which were far lower than emissions in real-world driving. As a result the test has now been changed to better represent on-road driving. This new procedure is called WLTP.

Every new car must now go through the WLTP test, but CO2 figures remain based on the old NEDC standard. That will change from April 2020. All new cars registered after that date will have their tax rate based on the WLTP CO2 figure, which will be higher in most cases.

So buying a car before April 2020 will ensure that the tax rate ios based on the older, lower CO2 figure throughout its life: delaying the arrival of your new company car for a few months until after that date could prove costly.

 

2020/21 Company car tax table

A surcharge of four per cent applies to diesel cars, apart from hybrid models and those that meet the very cleanest emission standard, known as Euro 6d.

CO2 emissions2020/21 taxable value
0g/km2
1-50g/km (electric range >130 miles)2
1-50g/km (electric range 70-129 miles)5
1-50g/km (electric range 40-69 miles)8
1-50g/km (electric range 30-39 miles)12
1-50g/km (electric range <30 miles)14
51-54g/km15(Diesel: 19%)
55-59g/km16(Diesel: 20%)
60-64g/km17(Diesel: 21%)
65-69g/km18(Diesel: 22%)
70-74g/km19(Diesel: 23%)
75-79g/km20(Diesel: 24%)
80-84g/km21(Diesel: 25%)
85-89g/km22(Diesel: 26%)
90-94g/km23(Diesel: 27%)
95-99g/km24(Diesel: 28%)
100-104g/km25(Diesel: 29%)
105-109g/km26(Diesel: 30%)
110-114g/km27(Diesel: 31%)
115-119g/km28(Diesel: 32%)
120-124g/km29(Diesel: 33%)
125-129g/km30(Diesel: 34%)
130-134g/km31(Diesel: 35%)
135-139g/km32(Diesel: 36%)
140-144g/km33(Diesel: 37%)
145-149g/km34(Diesel: 37%)
150-154g/km35(Diesel: 37%)
155-159g/km36(Diesel: 37%)
160+g/km37(Diesel: 37%)

Company car tax: petrol vs diesel vs electric

Deciding on whether to choose a petrol, diesel or electric company car can be simplified with one question: how many miles will you be doing?

Despite higher company car tax and plummeting diesel sales suggesting otherwise, motorists who will be spending a large proportion of their time going up and down the motorway - and who pay their own fuel bills - could well be best off with a diesel, as they can still make savings thanks to higher fuel economy, and can fill up quickly and easily.

The ideal choice is a car that's Euro 6d-compliant, which means that it's been tested on the road to ensure that toxic emissions from the exhaust are at extremely low levels. This rating means that diesel cars will avoid the  four per cent company car tax surcharge. However, few cars currently comply. Don't get confused with the Euro 6d-TEMP standard. Confusingly, this isn't as rigorous and these cars are still subject to the surcharge.

Long-distance drivers should also consider an electric car, given the huge savings to be made from next year. As well as the Tesla range, there are now several cars that can realistically travel for more than 200 miles on a single charge, including the Hyundai Kona Electric, Kia eNiro, Jaguar I-Pace and Audi e-tron. Fast chargers - if available and in working order, mean that a 30 minute stop at services will give a decent range boost of more than 100 miles.

Drivers who rarely travel across the country should at least consider an electric car because of the savings. There are currently few hybrids with a range of more than 40 miles, so the tax advantages of these cars are limited.

Don't write off petrol, though. These cars are increasingly efficient and cheap, which helps keep company car tax low.

As company cars tend to only last a few years, forthcoming clean air zone charges won't affect most diesel company car drivers. However, if your vehicle was on the road before September 2015, there is a chance that it doesn't comply with the latest emissions standards and you'll be liable for daily charges if you drive into the centre of cities including London and Birmingham.

   

Company car tax: key terms explained

Benefit-in-kind the government views things such as cars, accommodation and loans provided by your employer in a similar light to getting paid more money. So these benefits-in-kind are taxed.

CO2 emissions A by-product of burning fuel is CO2. The more you burn, the more fuel you use and the more CO2 is emitted from your exhaust. The less a car emits the better it is for the environment, so the less HMRC will tax you.

Company car tax band Based on the amount of CO2 your car emits and the fuel it uses, it will fall into a company car tax band. The bands are decided by the UK government and help calculate how much tax you will owe for running a company car.

Hybrid vehicle A car that uses two power sources, such a battery and petrol engine.

List price This is the price a manufacturer lists the car as and not the price you pay at a dealer. It doesn’t matter if you negotiate a cracking deal or not, the value HMRC will base how much tax you owe is the list price of the car. This doesn’t include vehicle excise duty or its registration fee.

P11D value This is the list price of your company car plus the cost of any optional extras such as an uprated stereo system. It is named after a form used by your employer to tell HMRC about company car benefits

Personal tax rate This is the tax you pay based on your salary/income.

Pure electric car A car that is purely powered by electricity.

Taxable value The proportion of your car's list price that you pay tax on. The vehicle's CO2 emissions dictate the size of this proportion.

Read more about:

Latest advice

  1. Initial Disclosure Document

  2. Poor credit car finance

  3. Car finance with bad credit

What our customers say