If you own a business vehicle, you may have to pay a company vehicle tax. But what is company car tax? And how much do you have to pay?
In this article, we’ll explain what taxes are, what changes you should be aware of, whether gas or electricity affects your company car tax payment, and the best ways to reduce your company car tax.
When does a vehicle become a company car?
A company car is a vehicle provided by an employer as part of the company’s welfare program in addition to annual income.
Must be able to use the vehicle for personal use outside of working hours.
Even if your personal use of the car is for commuting only, it is considered a privilege and means you have to pay taxes.
>Also see: Should Your Small Business Buy or Lease a Car?
What is company car tax?
The amount of company car tax you pay depends on:
- how much you earn each year
- car CO2 allowance
- Vehicle P11D value
To calculate the amount of company car tax you need to pay, HMRC first considers which CO2 emission band you fit into.
The amount of company car tax you pay can be calculated using a simple total. The P11D value multiplied by the CO2 allowance is called the benefit in kind, often abbreviated to BIK.
Then remultiply the BIK value by the appropriate income tax bracket (20%, 40%, or 45%).
Alternatively, you can use the company car tax calculator Provided by Her Majesty’s Revenue and Customs.
How about a hybrid?
If a company car’s CO2 emissions are between 1 and 50g/km, the car’s value is based on its zero-emission mileage, or “electric range.” This is the distance a car can travel on electricity before the battery needs to be recharged. The tax rate for company cars varies between 2% and 14%, depending on the CO2 emissions (less than 50g/km) and the electric-only range of the vehicle.
Electric vehicle company car tax
Electric vehicles are not completely exempt from company car tax, but the tax rate for fully electric vehicles is much lower. Currently, electric vehicles are exempt from paying Vehicle Excise Duty (VED) until 2025 and the BIK rate is fixed at 2% for tax years 2023/24 and 2024/25.
>See also: How to buy an electric car through a business
How can I reduce my company car tax?
There are several ways to lower it. While you can’t actually lower the tax amount, or necessarily change the type of fuel your car uses, there are a few things to consider when lowering your company car tax.
choose a cheap car
This sounds obvious, but even not using things like navigation can affect your P11D value. A lower P11D value means a lower company car tax is possible.
lose optional extras
Some optional extras, such as larger wheels, tow bars and roof windows, contribute to higher CO2 emissions and fuel consumption, and can increase overall tax rates.
Choose a car with low CO2 emissions
You don’t have to buy an electric car to reduce your carbon footprint. There are many petrol cars with low CO2 emissions, but there are also quite a few diesel cars that are the same. If you want to reduce the company car tax, we recommend that you consider a car with low CO2 emissions.
best small business company car
Electrical – BMW i4
winner of Times and Sunday Times Motor Awards 2022 In the Company Car of the Year category, the i4 is the all-electric version of the junior executive stalwart BMW 3 Series.
- CO2: 0g/km
- BIK Tax Rate: 2%
- EV range: 366 miles
- price: From £49,995
hybrid – vauxhall astra
This plug-in Astra offers a powerful 178bhp hybrid powertrain and 43 miles of electric-only range, but only attracts a BIK rate of 8%, compared to 30% for comparable petrol models. Also, the ergonomically designed seat is endorsed by the German Healthy Back Campaign and will be welcomed by road warriors who spend hours up and down highways.
- CO2: 23-24g/km
- BIK Tax Rate: 8%
- EV range: 43 miles
- price: From £37,285
hybrid – Skoda Superb iV
The Skoda Superb iV has everything Octavia does best. A spacious interior, good build quality, and an expensive ride. what car?
- CO2: 23g/km
- BIK Tax Rate: Ten%
- EV range: 34 miles
- price: From £40,240
Electrical – Tesla Model 3
The truly beautiful Tesla Model 3, with its minimalist space-age interior, has become one of the best-selling cars in the UK. This inexpensive model combines performance and long range with a spacious and technical interior.
- CO2: 0g/km
- BIK Tax Rate: 1%
- EV range: 305 miles
- price: From £42,990
Electrical – MG4
The MG4 has become the most searched for new car in the UK. auto carThis Chinese-made all-electric hatchback is a good entry-level EV compared to the more expensive Mercedes, Jaguars and BMWs, and an affordable option for small business owners to transition to all-electric at a low cost. provide a company car. running cost.
- CO2: 0g/km
- BIK Tax Rate: 2%
- EV range: 218 miles
- price: From £25,995
Company car details
Explanation of salary sacrifice electric vehicle system