Company Car Tax Liability and Rules
Company cars are a popular employee benefit. While it is true that employers are becoming less inclined to offer a company car as a result of increased costs, many positions still come with a car as part of the package.
It is important to remember that company cars attract a tax liability for the employee in certain circumstances. As such, while it can be a great way to drive a car that you might otherwise not have been able to afford, you should think carefully about the cost of your company car in tax.
Private UseA tax liability may arise on a car which is made available as a result of an individual’s employment. This might be to an employee or a director. A liability will certainly arise if that vehicle is available for private as well as business use, and the employee or director is earning more than £8,500 per year. An additional tax liability will arise if the fuel used for private journeys is paid for, in whole or in part, by the employer.
Calculating the tax liability of your company car is a complicated process; you must multiply the value of the car by what HMRC describe as the ‘appropriate percentage’. The price of the car should be judged by the list price on the day before the car was registered, added to the cost of any additions. Any lump sum payments made by you towards the purchase of the car will reduce the value for tax purposes.
CO2 EmissionsThe appropriate percentage is calculated by looking at the CO2 emissions of your car. This figure can be found in a different place depending on the age of the car. If it was registered from 1 March 2001, it can be found on the Vehicle Registration Certificate; if it was registered between 1 February 1998 and 28 February 2001, it can be found on the VCA Car Fuel Data website. As a last resort, you should be able to get CO2 emissions data from the car’s manufacturer.
You will also need to take into account any periods for which the car is unavailable for private use. It should be remembered that commuting to and from work counts as private use, while journeys made as a result of your employment duties count as work-related use. You should also consider any payment that you may have made in exchange for the private use of the car.
PaperworkThe final calculation regarding your company car tax liability is beyond the scope of this article, but form P11D, available from your employer or HM Revenue and Customs (HMRC), will provide you with step-by-step instructions similar to those found on a self assessment form. Furthermore, Help Sheet 203, available from the HMRC website, gives guidance on filling in the form.
The fundamental point to remember is that company cars are taxed in the same way as any other benefit in kind. If you earn over £8,500, you will likely be subject to some tax liability on your benefits. As such, you should negotiate with your employer to find the most tax efficient way of taking your salary and benefits.