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Company Car Tax |
Company Car Tax Explained
In April 2002, the UK government introduced a company car tax system that was weighted by carbon dioxide (CO2) emissions. It replaced a regime that favoured high-mileage drivers. The idea was to persuade company car drivers to cover fewer business miles - and to do so in more fuel-efficient cars.
The Inland Revenue estimates that the reduction in carbon emissions from company cars in 2003 was between 0.15 and 0.2 million tonnes (XX%) and the reduction in business mileage of company cars in 2003 was 300-400 million miles.
How is company car tax calculated?
There are three factors that influence the amount of tax:
(1) The car's list price for tax purposes (known as P11D), which includes any optional extras fitted to the car.
(2) The car's percentage banding, determined by its CO2 emissions and, in some cases, its type of fuel.
(3) The Company car driver's income tax band.
How the carbon dioxide tax bands are calculated.
There are currently 21 carbon dioxide tax bands. Anyone with a Company car that emits 145 grams or more of CO2 per kilometre is subject to surcharges as shown in the table below.
Company Car tax Bands |
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2004/05 |
2005/06 |
2006/07 |
What else you need to know If your car's CO2 emissions figure doesn't end in a 5 or 0, round it down - eg. 160-164g/km qualifies as 18% for 2004/05. Petrol cars incur no discounts or surcharges. Diesel cars that meet Euro 4 emissions standards incur no discounts or surcharges. Diesel cars that fail to meet Euro 4 emissions standards incur a 3% surcharge up to a maximum of 35%. Bi-fuel cars recieve a 1% discount. Hybrid electric cars recieve a 2% discount. Type-approved bi-fuel cars and electric hybrids receive a further 1% discount for each 20g/km below the minimum emission band level. Electric cars are taxed at 9% of list price |
15% |
145 |
140 |
140 |
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Source: The Rough Guide to Company Cars 2004
If the car is a petrol or one that meets the stringent Euro 4 emissions regulations then there is no tax surcharge. To find out details of the Euro 4 standard, viist the Vehicle Certification Agency at www.vcacarfueldata.org.uk. To find out what the CO2 figure is for a particular make or model of car then visit the Society of Motor Manufacturers and Traders web site: www.smmt.co.uk
How is tax on company vans calculated?
If the van is less than four years old, regular 22 percent income tax payers have an annual bill of £110 (£200 for 40 percent taxpayers). If it's four years or older , this is reduced to £77 (£140 for 40 percent taxpayers). If your company pays for your private fuel, you do not pay additional tax with a van, unlike a car.
The tax office may want to see a genuine reason for needing a van. Car-derived vans are classed as vans for tax purposes, but if in doubt check the tax for a specific model.
A major overhaul of company van tax takes effect from 6 April 2007. On that date, the flat rate rises by 600%, so the annual bill for a 22 percent taxpayer will be £660 (£1200 for a 40 percent taxpayer). The cheaper rate for older vans will be scrapped. In addition, if your company pays for your private fuel, you can add another £10 (22 percent payers) or £200 (40 percent payers) to that. This change in taxation could result in some van drivers wanting to swap their vans for cars, just to save tax. In 2007, most car-derived vans are expected to be heavier on tax than the cars on which they are based.
Free fuel?
If the company pays for private fuel you have to pay tax on it - a tax called Fuel Benefit Charge and unless you cover a high mileage privately, it may well be cheaper to pay for your own fuel instead of paying the tax.
The tax is calculated by taking the Inland Revenue's notional figure of £14,400, as opposed to the actual list price of the car, and multiplying this figure by the car's tax band percentage and then by your income tax band (see example below).
