Did you know HMRC imposes a tax on company cars?
WHAT IS THE TAX?
The tax is known as a ‘benefit in kind tax’. It is applied because the car is seen as an additional taxable benefit that is not included in someone’s salary.
A car that is provided by your employer that you can use for personal transport (outside of work) is classed as a company car. It’s known as a ‘benefit in kind’ is because you’re able to use the care outside of work. The fact you can use the company car privately has a monetary value attached to it.
HOW DOES IT WORK?
The tax you pay is decided by the value to you of the company car. This depends on how much the car would cost to buy and the type of fuel it uses.
Tax rates are predominantly based on a cars CO2 emission so your use of petrol or diesel affects the amount of tax you pay. So, if a car were producing little to no CO2 emissions, the tax chargeable would evidently be reduced.
Although expensive, electric cars have many advantages proving them to be cheaper in the long term, such as reduce benefit in kind tax. For those of you concerned about the price of electric cars a good halfway alternative to electric cars is a plug-in Hybrid.
You may also be liable to pay less tax if you only have the car part-time or are paying something towards the cost of the car.
Every car has a BIK percentage band based on its CO2 emissions and a P11D value. By multiplying the BIK percentage by the P11D value you get a BIK value. Which you then multiply by your personal tax rate to calculate your company car tax due.
You can also calculate the amount of tax expected to pay using the calculator provided by HMRC.