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How Much will Your Company Car Cost You in Tax?


You’ve seen the shiny new model in the showroom, you’ve been for a test drive and your heart is now set on your new company car. But before signing on the dotted line, do you know how much it will cost you in tax?

If you earn over £8,500 in a year or are a company director you will be taxed on a calculated value known as your ‘Benefit in Kind’.

To work out how much the taxable benefit on a particular car will be you need to know the price of your chosen model, the type of fuel and it’s CO2 emissions. To encourage environmentally friendly travel, the lower the CO2 emissions, the lower the taxable benefit.

The price of the car (also referred to as the P11D value) might not be the price you actually pay as it is based on the list price, plus delivery charges and any extras.

How is the taxable benefit calculated?
The taxable benefit is a percentage of the P11D value.
This percentage depends on the CO2 emissions. For the 2014-2015 tax year the percentages range from 5% to 35% – see examples below.
CO2 g/km % of P11D value
51 to 75 – 5%
130 to 134 – 19%
210+ – 35% (maximum)
These percentages are for petrol cars, for diesel cars you need to add a further 3% but still with a maximum of 35%.

To make things a bit clearer, here is an example:
P11D Value – £30,000
Fuel type – Petrol
CO2 emissions – 134
Benefit in Kind – £30,000 × 19% = £5,700

How is the amount of tax you pay calculated?
The taxable benefit is added to your income and taxed at your highest rate of tax. The tax you will pay depends on your other income – so 20% if you are a standard rate tax-payer or 40% if you are a higher rate tax-payer.
Your tax code will be adjusted to include the benefit but only once HMRC have been told that you have a company car. You can check with your employer that they have advised HMRC on form P46 (Car).

Is there a taxable benefit for free fuel?
If your employer provides free fuel for personal travel (including home to work travel), there will be an additional Benefit in Kind.
The taxable benefit is the Fuel Benefit Charge multiplied by the percentage based on the CO2 emissions.
The Fuel Benefit Charge (FBC) is currently set at £21,700 for the 2014-2015 tax year.
So based on the example above the Benefit in Kind will be:
£21,700 × 19% = £4,123

How can I double check the amount of tax I will pay?
At Embarc, we help our clients with tax planning and can check what your taxable benefit will be before you collect the keys to your shiny new car. Contact us today on 01224 900224 or email to find out about our personal tax advice services.