Company car tax rates

We're here to help you get your head around the latest company car tax rules and figure out how much tax you can expect to pay

Simon Ostler
May 20, 2021

If you drive a company car, and you intend to make the most of what's on offer during the next financial year, it's worth keeping up with the latest company car tax rates. These tend to change year on year, and there are multiple aspects that can affect how much tax you pay, including how much you earn, how much the car is worth and the amount of emissions it produces.

If you've never made use of a company car, you will first need to introduce yourself to two new terms you might not have heard of before: P11D value and Benefit-in-Kind (BiK). These are the two figures that will indicate how much company car tax you will pay.

The company car tax sum is a simple one if you understand the jargon, though. Say a car's P11D value is £20,000 and it's BiK rate is 25%, you will pay a percentage of tax on £5,000. The tax rate is controlled by your salary - if you're in the 20% tax band, you'll pay 20% tax on that £5,000 (£1,000) per year.

But, just like any form of tax, the equation is not universal and there are plenty of variables that can affect how much tax you pay. The cost of running an electric company car is far cheaper than a petrol or diesel thanks to their zero-emission status.

Read on if you're keen to keep up to date with the latest company car tax rates, learn more about how it's calculated, or find out whether a company car is the right choice for you.

What is company car tax?

A company car is paid for and provided to you by your employer, and you're required to pay for the tax on the vehicle if you use it for personal use alongside business use.

The reason you pay tax on a company car is because it is considered as a perk or benefit - hense the term Benefit-in-Kind. The car itself can be bought, hired or financed by your firm, but the payable tax will be the same regardless of how it is purchased.

Your company car tax rate is calculated according to three parameters: the car's P11D value, the car's BiK rate, and your salary.

  • A P11D value is calculated by taking the car's list price including optional extras, VAT and delivery charges, but exluding the registration fee and year-one road tax.
  • BiK rates are updated on an annual basis and are based on the car's emissions rating. A car with higher emissions will sit in a higher bracket and be suject to a higher BiK rate. 
  • Your salary will dictate the percentage of tax you pay in the same way as income tax. If your annual salary is within the 20% income tax band, then this will form part of the equation.

Calculating company car tax

So how do all of those complicated terms and numbers translate on a tax form? Let's go through what it looks like.

Let's say you've been rewarded with a BMW 1 Series as your company car, specifically a BMW 116i M Sport with a manual gearbox with an on-the-road (OTR) price of £28,750. Fistly we need to calculate its P11D value.

To find the P11D value, you have to ignore that OTR price, and instead focus on the basic list price (including VAT) of £27,630, as this removes the initial registration costs normally included in the quoted OTR price. Then you'll need to check the cost of delivery, in this case BMW charge £850, and add that to the cost to bring up a P11D value of £28,480.

This value is always worked out accoring to how much the car was worth when it was new, so if you're intending to get a used company car, the P11D value will be calculated from a historic price if one is available, or an estimated price if no original price can be determined.

That's the first bit out of the way. Next you need to identify the car's BiK rate - this is shown as a percentage.

The BiK rate is deisgnated according to a car's emissions. The BMW 116i M Sport produces between 134-146g/km of CO2 - for the sake of this example, we'll aim straight down the middle at 140g/km. Using the latest 2021/22 BiK bands laid out by the government, this places our car in the 32% bracket. With this number, we can work out the percetage of the car's value you'll be paying tax on.

32% of £28,480 = £9,114

Finally, you need to take into account your own salary, and your tax band. Let's say you're earning within the 20% tax bracket, that means you'll pay 20% tax on the value we just worked out.

20% of £9,114 = £1,823

This is the annual tax cost you can expect to pay on your company car. If, however, your firm is also paying for your fuel usage, then you'll be required to pay tax on this seperately.

Company car tax BiK bands 2021/22

The banding method used to calculate BiK rates changes annually, meaning it's not always clear how much a company will cost to tax in the future. To make matters more complicated, the method for measuring a car's emissions is also subject to change, and it was updated in 2020 meaning that cars registered since April 6 2020 are subjected to a different set of BiK bandings to cars registered prior to that date. The result is fairly minor as you'll see in the table below, but it's still worth bearing in mind when working out your company car tax rate.

Another aspect to be aware of is the diesel surcharge. Diesel cars which do not meet a specific emission requirement called RDE2 will be subjected to a 4% BiK penalty.

CO2 emissions (g/km)Electric range (miles)BiK band for cars registered after April 6 2020BiK brand for cars registered before April 6 2020
0n/a1%1%
1-50More than 1301%2%
1-5070-1294%5%
1-5040-697%8%
1-5030-3911%12%
1-50Less than 3013%14%
51-54n/a14%15%
55-59n/a15%16%
60-64n/a16%17%
65-69n/a17%18%
70-74n/a18%19%
75-79n/a19%20%
80-84n/a20%21%
85-89n/a21%22%
90-94n/a22%23%
95-99n/a23%24%
100-104n/a24%25%
105-109n/a25%26%
110-114n/a26%27%
115-119n/a27%28%
120-124n/a28%29%
125-129n/a29%30%
130-134n/a30%31%
135-139n/a31%32%
140-144n/a32%33%
145-149n/a33%34%
150-154n/a34%35%
155-159n/a35%36%
160-164n/a36%37%
165-169n/a37%37%
170+n/a37%37%

Company car tax: petrol vs diesel vs electric

As we've laid out above, one of the main factors involved in calculating how much company car tax you'll pay is how much CO2 your car produces. This figure shown in grams per kilometre (g/km) can change dramatically depending on the type of fuel you use. 

At the lowest extreme, electric cars are known for their status as zero-emission vehicles. Because they run on electric power, they produce no CO2, and therefore are subject to the lower BiK percentage bands. Plug-in hybrid cars will also offer the lowest BiK rates by virtue of their ability to run under electric power.

Low emission cars also have their benefits when it comes to driving in emission-controlled zones such as the London ULEZ. Driving a company car into city centres could get very expensive if you're having to pay the £12.50 daily charge for the privilege.

Then there are diesel cars, which have become much more complicated in company car terms more recently. Simply put, a diesel car that does not comply with RDE2 will be more expensive to tax as a company car because of the 4% BiK increase. However, an RDE2 compliant diesel wil sit in a cheaper band and will prove cheaper to run in the long term compared to a petrol alternative thanks to better fuel economy.

Petrol cars remain a decent compromise if you're looking for an easy life. They will prove to be more costly to run if you're covering a high amount of motorway miles, but their lower emissions figures will open up lower BiK bands.

 

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