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Everything You Need to Know About Company Car Tax

By: Kevin Dowling BA (IMC) - Updated: 21 Jun 2012 | comments*Discuss
Company Car Tax Road Carbon Dioxide

Company cars used to be a very pleasant and useful job perk, although in recent years company car usage has fallen victim to the Government’s determination to drive down fuel emissions and cut down the number of vehicles on UK roads. As a result, company cars are now significantly taxed.

The Government has successfully lobbied for changes to the rules for company car taxes in recent years, including the production of more environmentally friendly vehicles. This is part of its scheme to meet its environmental targets for lower emissions.

One of the most important changes has been that company car taxes are now directly related to the levels of carbon dioxide produced by each vehicle.

How does Company Car Tax Work?

Working out company car tax is not as complicated as it may sound. The user of a company car is required to pay tax on a percentage of the value of the vehicle. This is calculated as the listed new price from the manufacturer, plus VAT, delivery, number plates and any extras added to the car.

This total sum is called the P11D value.

The user is required to pay a percentage of this total amount, and this percentage is calculated depending on the carbon dioxide emissions measured on the make and model of car.

Vehicle CO2 Emissions

To determine the level of emissions for your company car, you can look at the car’s V5 document, or use the official guide from the Vehicle Certification Agency (VCA).

The tax payable will depend on the CO2 levels of the car. Taxes payable start at a 10% charge for 120g/km and rising to 35% for 235g/km for cars with higher emissions. In 2010/11 the tax level will change again For example, the 15% band will move down 5g/km along with all bands above it. As a result, the new starting rate for the tax will be 130g/km.

Once you have determined the level of CO2 for your company vehicle, you can determine whether the tax you are required to pay will be at the higher rate rather than the basic rate of tax. This is normally deducted every month from your salary.

Why are Diesel Company Cars so Popular?

Diesel company cars have long been popular with businesses and company car users, as not only is diesel fuel more economical, but also because they produce less CO2 and therefore they come with lower tax bills.

Of course, the downside to diesel cars is that they are significantly more expensive than petrol cars, meaning that a potential diesel driver will need to make sure that the higher P11D price of the vehicle doesn’t outweigh any advantage from being categorised in the lower tax band.

Company car users should also consider the running costs of the vehicle, as diesel costs more than petrol at the pumps. Therefore, to make sure that you don’t lose out financially you need to ensure the car meets the fuel economy figures from the manufacturer.

What About Other Vehicles?

Different types of company vehicle also have tax incentives and disincentives. For example, light commercial vehicles such as pick-up trucks and cabs are classed as a ‘benefit in kind’ if they are provided for private use only, and not used as social vehicles.

Unlike cars, the tax on commercially used vans is levied at a flat rate. This is currently at a cost of £3,000 if the van is less than four years old. If fuel is provided by the employer also, the tax payable on this fuel is £700 for a 20% taxpayer and increases to £1,400 for a higher rate taxpayer.

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