A company car is one of the most exciting perks for employees working in the UK. If you have received this benefit from your company, you might be wondering about its tax implications. Like most enjoyable things, your company car will also be taxed.
The percentage rates will vary depending on your salary bracket, the car’s price, and other factors like the car’s CO2 emissions. This guide will take a closer look at taxes for your company car. If you wish to consult a chartered tax advisor in Walsall and London, visit IBISS & CO.
What is the Company Car Tax?
A company car is a perk offered to you by your employer. If you have a car that you use outside of work and your company provides it, it’s a taxable benefit. According to HMRC, this car has a monetary value if it’s being used privately. They collect tax on this benefit, and it’s called the Benefit in Kind (BIK) tax.
Tax on Electric Cars
Electric cars were tax-free in 2020-2021. The BIK tax rate for electric cars, including Tesla, was 16% in 2019-2020, and it became 9% in the next year. However, the current tax rate is 2%, which will remain the same till 2023-2024.
However, there are two different BIK tables for electric cars. If you are driving an electric car registered before or after 6 April 2020, the table will change depending on that. Registered vehicles would have to pay the 1% tax rate after the said date.
Company Car Tax
How much tax you’re charged on your company car will depend on the model and its CO2 emissions. The Government has been using this to make companies buy environmentally-friendly cars and vehicles.
If you want to calculate your company car’s tax, first figure out the car’s price (its P11D value). Next, you will multiply the value by the tax rate for your car based on the CO2 emissions it falls under on the BIK table.
Now, you will multiply this BIK value you found by your personal income tax rate. The result will be the amount payable as the company car tax.
Diesel vs. Electric. Hybrid
The tax for diesel cars will cost you more than petrol, electric, or hybrid car. This is because diesel cars cause more pollution than petrol-engine cars. Most people choose diesel to save fuel; however, this saving will be spent when you pay the tax.
Hybrid cars have lower CO2 emissions and are great alternatives to fully electric or fuel-powered cars. They fall in a lower tax band. However, they do cost more and are expensive cars.
Choosing between a fuel-powered, electric, or hybrid car will depend on you and your company. If you want to be kind to the environment and don’t care about the cost of the car, you can go for electric cars.
If you want to purchase the company car you’re using, make sure you get a tax accountant consultation first. At IBISS & CO., we have the best tax accountants in London on our team. They can guide you better about your tax obligations. You can also consult our corporate tax advisor.
Reach out to us today.
