Paying A Company Car Tax: Everything You Need to Know
With company cars becoming increasingly popular, it is important to know the ins and outs of paying company car tax. Company car tax is a tax paid by employees who use a company car for personal use and is based on a number of factors, such as the car’s CO2 emissions and its price. In this article, we will go over everything you need to know about paying company car tax, including how it is calculated, the different tax rates, and how you can reduce your tax liability.
What is Company Car Tax?
Company car tax, also known as Benefit In Kind (BIK) tax, is a tax that employees pay when they use a company car for personal use. The tax is paid by the employee, not the employer, and is calculated based on a number of factors, such as the car’s CO2 emissions, its list price, and the employee’s tax bracket.
How is Company Car Tax Calculated?
Company car tax is calculated using a number of factors. These include:
– The car’s list price
– The car’s CO2 emissions
– The fuel type of the car
– The employee’s tax bracket
The list price of the car is used to determine the car’s P11D value. This is the car’s value when it is new, including all accessories and options. The P11D value is then used to calculate the BIK tax.
The car’s CO2 emissions also play a role in the calculation of BIK tax. The higher the CO2 emissions, the higher the BIK tax. This is because cars with higher CO2 emissions are considered to be less environmentally friendly.
The fuel type of the car also affects the BIK tax. Cars that run on diesel are subject to a higher tax rate than petrol cars. This is because diesel cars tend to have higher CO2 emissions.
Finally, the employee’s tax bracket is taken into consideration. The higher the employee’s tax bracket, the higher the BIK tax. This is because the employee is paying tax on the benefit they receive from using the company car.
What are the Different Tax Rates for Company Car Tax?
The tax rate for BIK tax depends on a number of factors, including the car’s CO2 emissions, its list price, and the employee’s tax bracket. The table below shows the different tax rates for BIK tax in the current tax year (2020-2021):
CO2 emissions (g/km) Electric range for hybrid vehicles (miles) Official CO2 emissions (g/km) 2019/2020 BIK rate (%) 2020/2021 BIK rate (%) 2021/2022 BIK rate (%)
0+ >130 16 0% 0% 1%
1-50 >130 16 16% 14% 13%
1-50 70-129 16-50 16% 14% 13%
1-50 40-69 51-75 16% 14% 13%
1-50 130 19% 16% 15%
51-54 70-129 51-75 19% 16% 15%
51-54 75 20% 17% 16%
55-59 >130 19% 16% 15%
55-59 70-129 51-75 19% 16% 15%
55-59 75 21% 18% 17%
60-64 >130 19% 16% 15%
60-64 70-129 51-75 19% 16% 15%
60-64 75 22% 19% 18%
65-69 >130 19% 16% 15%
65-69 70-129 51-75 19% 16% 15%
65-69 75 23% 20% 19%
70-74 >130 19% 16% 15%
70-74 70-129 51-75 19% 16% 15%
70-74 75 24% 21% 20%
75-79 >130 19% 16% 15%
75-79 70-129 51-75 19% 16% 15%
75-79 75 25% 22% 21%
80+ >130 19% 16% 15%
80+ 70-129 51-75 19% 16% 15%
80+ 75 26% 23% 22%
As you can see, the tax rate for BIK tax varies depending on the car’s CO2 emissions and list price. Electric cars and hybrids with low CO2 emissions are currently not subject to BIK tax at all. However, from April 2021, electric cars will incur a 1% BIK tax rate.
How Can You Reduce Your Company Car Tax Liability?
There are a number of ways to reduce your company car tax liability. These include:
– Choosing a car with low CO2 emissions
– Opting for a hybrid or electric car
– Choosing a car with a lower list price
– Using the car only for business purposes
Choosing a car with low CO2 emissions is one of the most effective ways to reduce your BIK tax liability. This is because cars with low CO2 emissions are subject to a lower tax rate. Opting for a hybrid or electric car can also reduce your tax liability, as these cars are often exempt from BIK tax completely.
Choosing a car with a lower list price can also reduce your tax liability. This is because the list price is used to calculate the car’s P11D value, which is then used to calculate the BIK tax. Finally, using the car only for business purposes can reduce your tax liability, as there is no BIK tax to pay on a company car that is used exclusively for business purposes.
Conclusion
Company car tax can be a complex topic, but it is important to know the ins and outs if you use a company car for personal use. The tax is calculated based on a number of factors, including the car’s CO2 emissions, its list price, the fuel type, and the employee’s tax bracket. There are a number of ways to reduce your tax liability, such as choosing a car with low CO2 emissions, opting for a hybrid or electric car, choosing a car with a lower list price, and using the car only for business purposes. By understanding the rules and regulations of BIK tax, you can ensure that you are not paying more tax than you need to.
When paying a company car tax in the United Kingdom, a company can use all of the same resources to pay a car tax online that are available to individuals. The ability to pay a company car tax online is provided through a website operated by The Driver and Vehicle Licensing Agency.
The Driver and Vehicle Licensing Agency website allows individuals and companies to apply for a new tax disc to prove that the latest Vehicle Excise Duty that has been assessed for the car has been paid.
Since The Driver and Vehicle Licensing Agency made it possible to pay the company car tax online, The Driver and Vehicle Licensing Agency had to adjust the regulations regarding tax discs. Previously, a vehicle with a tax disc that had expired the previous day would subject the disc holder to having to pay a fine immediately.
However, once it became possible to pay the company car tax, or for that matter any car tax online, the regulations were rewritten to allow five business days after the expiration of the previous tax disc to allow the new disc to travel through the first class post system.
