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Managing Company Car Tax as a Small Business Owner

Managing Company Car Tax as a Small Business Owner

Do you drive a company car? Company car tax can be daunting if you’re not sure on what you’re looking at but once you’ve grasped the basics, you’ll realise that it’s quite straightforward and there are plenty of sources to get information or guidance from.

If you drive a company car provided by your employer, and you’re able to use that vehicle outside of work for personal use, you will be required to pay tax on it.

Company car tax is primarily based on the car’s CO2 emissions as the government has decided that it’s the best way to help reduce the overall emissions in the UK, offering tax incentives to businesses that provide company cars.

HMRC class having a company car a benefit, a perk to the job, therefore company cars are associated with benefits in kind (BiK) which is the reason you have to pay tax on it. If you’re an employee, the tax will be deducted at source and the car is taxed at different rates depending on:

  • the taxable value (P11D value)
  • how much carbon dioxide the car emits
  • the fuel type
  • your personal income bracket

You will have to pay tax on your company car if:

  • You’re an employee
  • You’re self-employed by run your business as a limited company
  • You’re an employer, and will pay Class 1a National insurance on each company car
  • You’re an employer, you will need to file a P46 car tax form for each company car

Each year the tax rates change according to HMRC’s guidelines, and generally across the board the rates have increased for 2018/2019. This is especially noticeable for low emission cars. For example, even if you have electric zero emissions car, you will still need to pay tax on it.

You can calculate how much you may have to pay for company car tax each year by making this calculation:

  • Multiply the company car tax band percentage rate by your car’s P11D value to give you your benefit in kind
  • Then multiply that figure by your personal tax rate: 20% or 40%.
  • This will then give you your yearly amount of company car tax due.
  • For example, a diesel company car with CO2 emissions of 98g/km would be subject to a 24% company car tax banding in the 2018/19 tax year.

Petrol vs diesel

Diesel cars have a 4% surcharge over petrol models with similar emissions. If you’re choosing your next company car, you’ll need to work out whether you cover enough miles in a year to make it beneficial to choose a diesel over a petrol car. However, bear in mind that your company car should be suited to the work you do. Even though it may look cheaper on paper to have a petrol car, they are often smaller inner-city cars. If you are doing a lot of motorway or long-distance driving, the diesel would be a more sensible choice. Choose a fuel type that is efficient to you.

By choosing a smaller car or a car that emits less CO2, you can have a chance of reducing the company car tax. Also, by looking at lowering the P11D value can potentially mean lower company car tax.

You can visit the HMRC website to find further information on what rates you should be paying, there is also a helpful tax calculator with lots of additional help so you can be assured you’re paying what you should be.

If you’re a small business owner looking at company cars or how to deduct the correct tax for your employees on their company cars, we’d be happy to help. Give us a call and speak to our friendly accounting team.


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