Company car tax is one of those necessary evils that come with the benefit of having a company vehicle.
The good thing about company car tax is that it’s fairly easy to calculate. In fact, you can do it yourself with a pad and pen.
But, how do you do it?
In this article, we look at how company car tax is calculated for both cars and vans, and ways to lower your company car tax.
How is company car tax calculated for a company car?
The reason we are separating a company car and a company van is that they are calculated differently.
With a company car, the amount you pay is based on three things;
- The P11D value of your car
- Your private tax band (either 20% or 40%)
- The amount of CO2 your company car emits
Predominantly, though, it is how much CO2 your car emits. So, the less CO2 the less you have to pay in company car tax.
The amount you will have to pay is dependent on the BIK rate in accordance to the BIK rate table, which we’ve provided below.
How to calculate company car tax for a company car
To calculate how much you will be paying in company car tax, you do the following;
- Take the P11D value of the car; This is;
- The list price
- Delivery fees
- Road tax
- Any additional extras you asked for (satnav etc)
- Multiply this by your company car tax rate – this will give you your benefit-in-kind rate
- Multiply your BIK rate by your personal tax rate
And this total will be how much you pay in company car tax. For example;
Say a car has a P11D value with £10,000 and a company car tax rate of 15%. The BIK value will be £1500. If your personal tax rate is 20%, your company car tax on the vehicle will be £300 (20% of £1,500)
There are websites that do this for you, such as comcar, or you can do it yourself. Or, you can ring up an experienced vehicle broker who will be able to do it all for you no problem.
Changes to company car tax 2017
Before we leave it there and move onto vans, there are some changes coming into effect this year regarding company car tax.
We’ve already mentioned the additional bands being introduced, mainly for the cars with lower emissions, but there are also changes to how salary sacrifice schemes themselves are taxed.
A company car is a salary sacrifice scheme. This is a benefit that your employer offers you instead of the cash. For example, a gym membership, childcare vouchers or a company car. These salary sacrifice schemes are taxed considerably less (or not at all) than their cash equivalent, which makes them very appealing to employers and employees alike.
What does this mean for your salary sacrifice? This means that you will be taxed on whichever is highest; the BIK rate OR the cash equivalent. This, as you may have realised, unfairly targets those with low emission cars, as they have significantly lower BIK rates. We know, we’re outraged too.
This means that if you get a company car, you could end up paying considerably more than you were before.
There is no official word as to when this will come into effect. Some say April 2017, but some say it could be later but the general consensus is that it will happen within the next few years.
However, the government have confirmed that if you have a company car before April 2017 then the current tax system will be honoured until 2021.
One ray of hope, however, is the exemption of ultra-low emission vehicles. These are vehicles that emit 75g of CO2 or less per kilometre. These ultra-low emission vehicles will be taxed as per the normal way. For more information on ultra-low emission vehicles, you can read our article here.
How to calculate company car tax for a van
The way company car tax is calculated for a van is slightly different. Instead of having a sliding BIK rate, vans have a fixed BIK rate which can be reduced depending on a variety of factors.
What counts as a van?
Good question. To qualify as a van, a vehicle must be;
- Primarily constructed for the conveyance of goods or burden
- A gross vehicle weight that does not exceed 3,500kg fully laden
Does a pickup count as a van?
Another very good question. If you have a pickup, there is a chance you can get your company car tax as if it were a van instead of a car. To be able to qualify, your pickup must have a payload of at least one tonne. This excludes the removable hardtop cover.
The good news is that a lot of 4×4 pickups are designed to meet the HMRC requirements, so the chances are your pickup will be able to qualify as a van.
How is company car tax calculated for a van?
As we mentioned above, there is a fixed rate for company car tax for a van. This can be reduced if it meets the criteria we list below.
If you are using your company van for private journeys
If you are using your car privately, that is to travel to and from work and pop to the shops on weekends, then you will have to pay a fixed value of £3,150. However, you can reduce this;
- If the employee can’t use the van for thirty days in a row
- If the employee pays you to use the van for private use
- If other employees use the van
- In which case, you divide the above value by the number of employees that use the vehicle
If you are paying for your employees fuel, then you will have to pay £594 as a standard value.
However, you can also reduce this amount;
- If the employee can’t use the van for thirty days in a row
- If the employee pays back the fuel they use privately
- You stop providing fuel during the tax year
And that’s it. So, there’s a fixed rate you have to pay on a van. This is beneficial to many because if it was a sliding BIK rate, the company car tax would be much higher because vans emit more CO2. This is particularly the case for those who have a pickup as their company vehicle. It is much more tax efficient for those driving pickups to go through a company as it qualifies as a van. This will cost considerably less than if they did it privately or as a company car. You can read more about company car tax for vans here.
Company car tax and zero emission vans
The only thing we have yet to touch upon is zero emission vans. There aren’t that many electric vans on the market currently, but there are some. And, we would always encourage low emission vehicles if it is possible. However, does it affect your company car tax?
Yes, it does. The same as if you had an ultra-low emission car, a zero emission van is very beneficial in terms of reducing company car tax.
Instead of paying the fixed £3,150, you instead pay a mere 20% of that. This is £630. So, there’s quite a difference. Therefore, if you want the lowest company car tax on your van, then you should really be looking at an electric van.
How to lower your company car tax
Now you know how company car tax is calculated, what can you do to reduce your company car tax?
Quite simply, aim for a lower emission car. A low emission car will always equal lower company car tax. You can also opt for a slightly less-expensive car as this will lower the P11D value. If you want to avoid the salary sacrifice changes, then you will want to be looking at an ultra-low emission vehicle. These are either plugin hybrids or electric vehicles. There are more and more of these ultra-low emission vehicles being introduced, so to find out the latest models, use our search function.
If you want to lower your company car tax on a van, then you can do any of the above that we’ve mentioned. For example, allowing more than one employee to use the van, or get your employees to pay back their private fuel. Alternatively, you could lower your carbon footprint and your car tax bill by opting for an electric van.
So that’s how company car tax is calculated. Cars and vans are taxed differently and it’s important you know how the two are calculated and how they differ. Hopefully this has given you some insight, and if you are in any doubt about anything, then we advise you contact an experienced broker who will be able to help you.