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How Does Company Car Tax Work?

Company Cars Tax Doesn't Work The Same As Your Regular Car Tax, It Combines Factors Such As Your Cars Total Value and Your Cars C02 Emissions.

Nov 17, 2014

How Does Company Car Tax Work?

For millions of workers across the UK, a company car remains one of the main perks of their job. While the rules for company cars are constantly changing a new car is still one of the main benefits that employers offer, even though you are liable for tax on your car. But, how does company car tax work? How has it changed over recent years? And is a company car right for you? Keep reading for the answers to these questions and more.

What Is Company Car Tax?

How does company car tax work?

If your employer provides you with a car to use privately (including for commuting) then you will pay tax on it. The amount of tax that you pay depends on:

The ‘taxable value’ of the company car – this depends on factors such as the list price of the car and the amount of time the car is unavailable during the year (for example due to a mechanical fault)


The car’s fuel type and CO2 emissions – the tax rate that you pay is determined by the car’s CO2 emissions and whether it is a petrol or diesel


Your car’s ‘taxable value’ is reduced if you have the car part-time or you pay something towards its cost.

For the tax year 2014/15, the tax rate is 15 per cent for cars with CO2 emissions of 95 to 99g/km or less. Charges then increase by 1 per cent for each additional full 5g/km up to a maximum charge of 35 per cent for emissions of 200g/km or more.

If the car uses diesel there's a 3 per cent supplement on top, but the maximum charge is still 35 per cent.

Company Car Tax Calculator

How to work out the tax that is due

In simple terms, you take the price of the car excluding first registration fee and road tax. This gives the car’s ‘taxable’ or ‘P11D’ value.

You then establish the car’s CO2 emissions and work out which ‘Benefit In Kind (BIK) band’ the car is in. For example, in the tax year 2014/15 a car with CO2 emissions of 142g/km will pay tax of 21 per cent.

Using these figures can help you work out what the car is judged to be worth to you for that tax year. This is then added onto your salary and you will then pay income tax on that sum.

How has company car tax changed?

Since 2000 there have been a number of changes to the way that company car tax works.

The most significant change came in 2002. Before then, the financial benefit of a company car was assessed primarily based on price and mileage driven. After the change the tax payable was modified so that vehicles with lower emissions were assessed at a lower value than those with higher emissions. The change aimed to encourage companies to use ‘cleaner’ and more environmentally friendly cars.

Changes to company car tax rules are also planned for the future. Two new bands; 0-50g/km and 51-75g/km will be introduced in 2015 and electric and hybrid cars will also be subject to tax. In addition, the 3 per cent diesel levy will be scrapped in 2016.

Is taking a company car a good choice?

There are many advantages to driving a company car. Many people choose a company car because it takes less planning and research. You often have a limited choice of vehicles and so it makes picking a company car easier.

In addition, your employer’s lease company will also take care of all the maintenance and servicing of your car. This makes driving a company car largely hassle-free.

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