Tax and the Company Car
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The system for taxing those who use company cars has remained fundamentally unchanged for some years, save for stepped changes in the emissions thresholds. The basis of the charge is to tax a figure calculated by multiplying the car's list price by an emission-based percentage, with a 3% surcharge on diesel powered cars.
The taxable value of the benefit continues to be up to a maximum of 35% of the list price of the car when first registered. The list price includes car tax (if applicable), Value Added Tax and delivery charges, and is subject to an upper limit of £80,000.
Cars emitting CO2 at or below a specified level are taxed on 15% of the list price. This is the usual minimum charge and will apply up to an emission level of 139g/km.
Cars running solely on diesel fuel are subject to a 3% supplement. Special rules apply to cars running on electricity, electricity and petrol, gas or petrol and gas, which are generally seen as more environmentally friendly.
Cars with higher levels of CO2 emission are taxed on a graduated scale rising to a maximum (for both petrol and diesel) of 35% of the car's price. The detailed figures are shown in the Appendix. These figures apply to all company cars, including second cars.
Cleaner diesels
When the current system was introduced, it included a discount of 3% for diesel powered cars compliant with the Euro IV emissions standards to encourage earlier take-up of 'cleaner diesels' and effectively cancelling the 3% surcharge on all diesel company cars.
As it is not now possible to purchase a new car which is not Euro IV compliant, the 3% discount was withdrawn from 6 April 2006 for cars first registered after 31 December 2005. It continues to be given for Euro IV compliant cars registered upto and including that date.
CO2 emission information
For all cars first registered from at least November 2000, the definitive CO2 emissions figure for tax purposes will be recorded on the Vehicle Registration Document (V5). Under an agreement with HM Revenue & Customs, the Society of Motor Manufacturers and Traders (SMMT) is providing a CO2 emissions enquiry service on their website at www.smmt.co.uk for cars first registered from January 1998.
Older cars
Cars first registered before January 1998, for which there are no reliable CO2 emissions data, are taxed according to their engine size, as follows:
| Engine Size (cc) |
Percentage of car's price charged to tax |
| 0 - 1400 |
15% |
| 1401 - 2000 |
22% |
| 2001 and more |
32% |
Fuel scale charges
Where the employer pays for any fuel used privately by the employee, there is an additional scale charge based on the CO2-based car benefit percentage applied to a standard value of £16,900. This will increase inline with inflation each tax year.
Employee contributions
Where the employee is required, as a condition of the car being made available, to pay for the private use of a car the value of the benefit is reduced accordingly (on a pound for pound basis). Capital contributions of up to £5,000 made by employees towards the cost of the car and/or accessories, when the car is first made available, will continue to reduce its price for tax purposes.
By contrast it is "all or nothing" for the fuel scale charge, which remains at the full value unless the employee pays for all private fuel!
HM Revenue & Customs has published baseline rates which will be accepted either for employers re-imbursing employees for the cost of fuel for business mileage, or for employees re-imbursing employers for the cost of fuel for private mileage. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a four-wheel drive vehicle, a higher rate per mile might be agreed due to the typically higher fuel consumption of such vehicles.
Current mileage rates
1 January 2008 to 30 June 2008
| Baseline fuel mileage rates |
| |
Rates per mile |
| Engine Capacity |
Petrol |
Diesel |
Gas |
| Up to 1400cc |
11p |
11p |
7p |
| 1401 - 2000cc |
13p |
11p |
8p |
| Over 2000cc |
19p |
14p |
11p |
| Baseline fuel mileage rates |
| |
Rates per mile |
| Engine Capacity |
Petrol |
Diesel |
Gas |
| Up to 1400cc |
10p |
10p |
6p |
| 1401 - 2000cc |
13p |
10p |
8p |
| Over 2000cc |
18p |
13p |
10p |
HM Revenue & Customs has announced that rates will now be reviewed biannually and any changes will take effect on 1 January and 1 July. This area of our site will be updated around the beginning of June and December about one month before any change takes effect. If however there are significaant fuel cost fluctuations, then rates may be changed accordingly.
Tax payable
These standard charges are subject to income tax at basic or higher rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.
For the benefit to be attractive, the employee must pay less in extra tax than it would cost him to run his own car out of his taxed income. These are examples of the 2008/09 tax costs to an employee of a company car:
Basic rate liability example
| List Price |
CO2 emission g/km |
Tax Rate 20% |
| Petrol |
Diesel |
| Car £ |
Fuel £ |
Car £ |
Fuel £ |
| £13,000 |
165 |
546 |
710 |
624 |
811 |
| £18,000 |
200 |
1008 |
946 |
1116 |
1048 |
| £25,000 |
221 |
1600 |
1082 |
1750 |
1183 |
Higher rate liability example
| List Price |
CO2 emission g/km |
Tax Rate 40% |
| Petrol |
Diesel |
| Car £ |
Fuel £ |
Car £ |
Fuel £ |
| £13,000 |
165 |
1092 |
1420 |
1248 |
1622 |
| £18,000 |
200 |
2016 |
1893 |
2232 |
2096 |
| £25,000 |
240 |
3200 |
2163 |
3500 |
2366 |
Use our calculator to check your car benefit
Tax free benefits
The provision of a car parking space at or near the employee's place of work is not an assessable benefit.
There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others.
Please note: A pool car must not normally be kept overnight at or near an employee's home.
The provision of a car for an employee (NOT a director) who is paid at a rate below £8,500 per year (including the value of benefits) does NOT attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.
- Special Consideration for Sole Traders
If your spouse is employed in your business (but not as a partner), it can be very tax efficient to provide them with a car, as long as they earn well below £8,500. The use of the car can be tax-free in their hands, and the business will get full tax relief on all the expenses connected with the car, provided you can demonstrate the car is necessary for business purposes.
Business use of an employee's own car
It is quite normal practice for employees to be reimbursed at a reasonable mileage rate for business use of their own cars.
A statutory system of tax and national insurance free mileage rates applies for business journeys in employees' own vehicles, as follows:
| Cars and vans |
| On the first 10,000 miles in the tax year |
40p per mile |
| On each additional mile above this |
25p per mile |
| Motor cycles |
24p per mile |
| Bicycles |
20p per mile |
It is no longer possible to make a claim for tax relief based on actual receipted bills, nor claim capital allowances or interest on loans related to car purchases.
Unless the employee is reimbursed at a rate higher than the statutory mileage rate, the payments do not need to be reported on a P11D.
Company vans
The taxable benefit for the unrestricted use of company vans is £3,000 (with no reduction for older vans) plus a further £500 of taxable benefit if fuel is provided by the employer for private travel.
The tax payable on the use of a company van ranges from £500 up to £1,400 p.a., and the employer's Class1A NIC payable ranges from £330 to £385 p.a.
Use our calculator to check your van benefit
Tax saving check list
- Keep adequate records of business mileage.
- Always check your tax code to see that the correct benefit is being applied.
- Sole traders and partners should consider the potential tax advantages of providing their spouse with a company car.
- If you have low private mileage, you may be better off if you pay for all your own private fuel.
- If you have high business mileage, it may be better to use your own car and claim "mileage" from your employer.
- Encourage your employer to apply for a P11D dispensation.
- If you are on the borderline of "lower paid", think about setting up a contribution for the use of the car, to keep on the right side of £8,500.
- Tax - free parking is a must!
2008/09 taxable benefits table
| CO2 in g/km* |
Taxable % |
CO2 in g/km* |
Taxable % |
| Petrol |
Diesel |
Petrol |
Diesel |
| Less than 121 |
10% |
13% |
185 to 189 |
25% |
28% |
| 121 to 139 |
15% |
18% |
190 to 194 |
26% |
29% |
| 140 to 144 |
16% |
19% |
195 to 199 |
27% |
30% |
| 145 to 149 |
17% |
20% |
200 to 204 |
28% |
31% |
| 150 to 154 |
18% |
21% |
205 to 209 |
29% |
32% |
| 155 to 159 |
19% |
22% |
210 to 214 |
30% |
33% |
| 160 to 164 |
20% |
23% |
215 to 219 |
31% |
34% |
| 165 to 169 |
21% |
24% |
220 to 224 |
32% |
35% |
| 170 to 174 |
22% |
25% |
225 to 229 |
33% |
35% |
| 175 to 179 |
23% |
26% |
230 to 234 |
34% |
35% |
| 180 to 184 |
24% |
27% |
235 and over |
35% |
35% |
| * The exact CO2 figure is rounded down to the nearest 5g/km |
