Company car – will I pay tax?

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As a business owner, you will probably have thought at some point about a company car, right? If not, you will have at least heard it mentioned by someone.

How does it all work though? Does the company pay? Do you pay anything? Is there a tax bill?

In this post, we will walk you through it, and hopefully help you make sense of this confusing area that is company cars!

 

What is a “Company Car”?

Let us start at the beginning. Sounds like an obvious question, right? Well mostly yes, but we will remind you of a few important points:

  • It is a Car (not a Van) which is legally owned by the Company, and NOT yourself. The Company is on the legal documents of ownership

  • As it is legally owned by the Company, all associated costs are paid for by the Company – the cost of the car can also be claimed by the Company for tax purposes

  • The Car does not belong to you – therefore, by using the car, HMRC class it as a “benefit”, just like getting a salary, and so you get taxed on the car use like you would with a salary

  • The Company will either purchase or lease a car, and then provide you with personal use of it.

  • The Company itself will pay NI on the Company Car for you

  • You will also pay tax/NI, and should receive an annual P11d which shows this, to then go on your Self-Assessment Tax Return
 

Why is the choice of car important?

So, your next question is probably, how much tax will I pay if I have a Company car?

This is where it highly depends on the actual car chosen. The following will determine how much tax you will personally pay:

  • Make, model and list price of the car
  • CO2 emissions
  • Engine size
  • Fuel type

 

The idea is, the lower the CO2 emissions, the lower the tax bill. The lower the list price (value) of the car, the lower the tax bill. If you pay for your own fuel, the lower the tax bill, and so on!

 

Why are the CO2 emissions relevant?

The CO2 emissions will tell you the percentage (%) applied to work out the tax bill. See below the most recent CO2 tax bands:

 

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 40-69 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
120-124   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
155-159   34 35 36 36 36
160-164   35 36 37 37 37
165-169   36 37 37 37 37
170+   37 37 37 37 37

* Add 4% for diesels up to a maximum of 37% (unless RDE2 compliant). Diesel plug-in hybrids are classed as alternative fuel vehicles, so the 4% diesel supplement does not apply to these vehicles irrespective of RDE2 compliance

 

How to Calculate the Tax on my Company Car

Note: this is just a basic step overview, and you should check with your accountant before relying on figures

Step 1 – Take the price paid for a new car (or notional price if list price not available)

Step 2 – Add accessories

Step 3 – Deduct any contribution paid by yourself/employee (max of £5k)

Step 4 – Multiply by the appropriate CO2 % (per table above)

Step 5 – Ignore any period of which the car was not available to you in the tax year

 

 # Example

Ok, let’s walk through an easy example to demonstrate. Bob owns a Company and wants a Company car. His Ltd Company buys a new car for £25,000 with CO2 emissions of 61 g/km.

Step 1 – Car cost £25,000

Step 2 – No accessories to add

Step 3 – Bob contributed £1,000 towards the car = £24,000 (£25k – £1k)

Step 4 – The appropriate % per the table above is 15% – based on the 61 g/km

Step 5 – He had the car for 100 days of the tax year – 365 – 100 days = 265 NOT available

Calculation

  • £24,000 x 15% = £3,600.00

  • £3,600 / 365 x 265 = £2,613.70

  • £3,600 – £2,614 = £986 = Cash equivalent of Company Car which will be taxed on a P11d

  • The £986 will be taxed at the rate dependent on your tax bracket (20%/40% if basic or higher rate)

 

Claiming mileage on VAT

Your business can claim back the VAT on the fuel used for business and work-related trips. For example, if you’ve used the car to meet a customer for work, if you’ve travelled from your office to another work location or have gone to a conference.

However, you won’t be able to claim compensation for commuting from home to work and back.

 

Tips

  • Currently, 0-50 emissions cars are being taxed at 0% – so would recommend taking this route if you can when choosing a Company car!

  • If the Company pays for any private fuel usage, this will incur an additional taxable benefit


 

Company cars can be quite a heavy tax burden if not done correctly! Make sure to check with an Accountant before committing, just in case.

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