A company car is one a business provides to an employee so they can use it to carry out their work, plus do private journeys. Also known as a fleet vehicle, it can act as an attractive perk to encourage new employees to join your firm.
On the surface, it’s a win-win: the employee gets a sparkling new car or van, while the employer can sleep soundly at night knowing work journeys are being done in something that’s safe, reliable and efficient.
A fleet car isn’t necessarily the most cost-effective option for everyone, though. Before you start browsing your firm's company cars list, it pays to do a few sums to make sure the numbers add up for your circumstances.
That’s where we come in – this guide to company car tax can help you make sense of the system, and help you get the right fleet vehicle at the right price.
Most company car drivers use their vehicles for business and pleasure, which means they must pay benefit-in-kind (BIK) tax on it – and it’s vital that you work out exactly how much you’ll have to pay each month to HMRC.
First up, you need to know your company car’s P11D value. This is the list price, including of VAT and delivery charges, but not including the first registration fee of the first year of road fund licence. Don’t forget any extras you plan to add to the car's basic spec – these have to be included in the P11D calculation.
Next, you need to know your car’s official CO2 emissions figure. Cars are classified in percentage bands according to the amount of CO2 they emit.
Bear in mind that electric cars have no exhaust emissions, which is part of what makes them such popular fleet cars. The CO2 figure for any non-electric vehicle can be found on the manufacturer’s website.
You may have noticed that plug-in hybrids (PHEVs) have become another popular option for fleet drivers. With PHEVs, the distance they can officially be driven using just the battery and electric motor (i.e. without the engine kicking in) is taken into account for the BIK rate.
It’s a lot to think about, but the general rule of thumb is that the more expensive a vehicle is, and the more CO2 it emits, the more you’ll have to pay in company car tax.
Tax bands run from 2% to 37% for the current 2023-24 tax year. Slightly different rates apply depending on whether the car was registered before or after 6 April 2020. (That's the date official CO2 output moved from the old NEDC test figures to the tougher WLTP protocol.)
So, if your company car has a P11D value of £30,000, emits 120g/km of CO2 (which puts it in the 29% BIK bracket – see table below) and you pay tax at 20%, you need to do this calculation:
