Business car tax may be a confounding thing to get your head around, so we’ve assembled a quick guide to help.
Company car tax is calculated differently to ordinary VED auto tax, based on more than just CO2 emissions. Emissions are still a variable but the car’s list price, discretionary equipment, fuel kind, how you cover the car and when the vehicle is used are all considered in setting the company car tax rate.
What’s company car tax?
If your employer provides you a business car, it is considered a Benefit In Kind (BIK), or a perk that you get to your normal yearly salary in addition. As with your yearly wages, it is
subject to tax from Her Majesty’s Revenue & Customs (HMRC). Among the easiest things to do would be to go to the HMRC website to use their company car tax calculator and help sheet pages.
The tax rate for the automobile you choose to run as a business car depends upon its carbon dioxide (CO2) emissions and is a percent on the basis of the P11D value of the vehicle. This worth is the total cost of the automobile including choices added to the vehicle but without non-taxable items, like the very first year’s road tax and registration fee that was original. Its worth is reduced, though, in the event that you pay something towards the car part-time’s price in the very first place or if you possess it.
It is important to be aware that company car tax bands aren’t exactly the same as regular Vehicle Excise Duty automobile tax bands. In terms of BIK business car tax bands predicated on emissions, there are thirty distinct degrees.
Is your cars business car tax rate established?
The least polluting company car versions earn a five per cent BIK rate, while the highest polluters are taxed at 35 per cent. As the tax year changes, rates will change, too. So, from April 2015, electric vehicles (EVs) – which were previously exempt – will face a five per cent BIK rate. We have included a company car tax band table at the base of the page to make things easier. This is for the 2015/2016 financial year after which the groups shift again.
Business car tax: petrol vs diesel
Diesels currently have a three per cent surcharge over petrol versions with similar emissions since they emit greater quantities of harmful particulates, so should you are selecting between petrol and diesel for your subsequent company car, you’ll must work out whether you cover enough miles in a year to cover the additional expense of a diesel company car in the very first place.
How much business car tax will I pay?
The amount of company car tax you actually pay is dependent on your annual salary. For example, should you drop into the twenty per cent income tax bracket, you will pay twenty per cent of the taxable portion of the car’s P11D value. Forty per cent are, meanwhile, paid by those in the forty per cent tax bracket on the taxable chunk of the P11D. This may normally be deducted from your monthly pay packet.
Business car tax calculator example
Here’s the best way to calculate your company car tax in three easy measures –
1) Take your company car’s P11D value (for example GBP15,000)
2) Multiply this value by the car’s company car tax rate which is dependent on CO2 emissions (for example 15%) to get your BIK amount
3) Multiply this BIK value by 50%, 40% or your own personal tax rate – 20% – (). This can be the amount of company car tax payable.
GBP15,000 x 15% = GBP2,250 (BIK sum) x 20% = GBP450 per year
Business car tax jargon buster
If all of the expressions and jargon related to business car tax are a little confusing, we’ve put together a quick glossary to help you comprehend all the important bits…
— Benefit in Kind (BIK) – Benefits that aren’t included in an individual’s salary, one of which is the company automobile
— Her Majesty’s Revenue & Customs (HMRC) – The tax authority in the UK
— P11D – form that must be completed by a company every year and sent to HMRC
— P11D value – Overall value of the automobile including RRP, VAT and any extras for example parking sensors, sat nav or metallic paint.
— Recommended Retail Price (RRP) – This is how much the car manufacturer recommends that the automobile should be sold for.
— Vehicle Excise Duty (VED) – amount payable on all autos, including business automobiles, that’s calculated based on CO2 emissions of the automobile