Company Car Tax Explained

Being given a Company Car can be an immense privilege, recognition of your hard work and achievements. However, when a company supplies its employees with a company car, there are many factors that must be considered. Most important of which is company car tax .

When you earn more than £8500 per year and have been supplied with a company car, you will be liable to pay car tax, or as it is often referred to, benefit-in-kind tax. This is due to your company car being seen as an additional benefit outside of your work. The amount of company car tax you are entitled to pay is determined by the following:

• The list price of your company car and any accessories that are fitted within it.
• The amount of Carbon Emissions (CO2) that are produced.
• The type of fuel the car uses whether it is diesel or petrol operated.
• The highest level of income tax that you pay, 20% or 40%

As a rule of thumb, the higher the carbon emissions, list price or income tax that you are paying, the higher your company car tax bill will be. So driving a low-emission, cheaper car will be more tax efficient that a more expensive, less economical car. The most important factors to watch are the list price and carbon emissions; these directly affect the overall amount of car tax that you will be liable to pay. The calculated amount is then added to your earnings as a cash value, which is then taxed as part of your overall income. Depending on your annual level of income, some of this will be taxed at 20%, or at the higher 40% rate.

There are ways that you can judge just how much tax you will be entitled to pay. The most popular method is by using a car tax calculator. Many car dealers will have this feature built into their website, to be used to calculate exactly how much tax you can expect to pay for certain car models. A car tax calculator works by taking into account the car model (list price) and fuel type (carbon emissions) using this information to determine how much tax you will have to pay, either monthly, or annually.

By taking into account the tax you will be liable to pay, a company car can be an extremely rewarding benefit of your employment. This will be providing you with flexibility and security within a busy and ever changing economy.