How is the taxable benefit calculated on company cars?

A company car is a car made available by the employer for the private use of an employee. Private use includes ordinary 'home to work and back commuting journeys.

You have to pay tax on any benefit in kind you receive, including a company car, if you earn more than £8,500 a year (including the value of the benefit).

Employees have to pay tax on the 'car benefit', depending largely on its carbon monoxide emissions. The least polluting company car models, are electric vehicles, taxed at 5%, while the highest polluting cars are taxed at 35% and a minimum of 15% of the 'price' of the car. There is HMRC guidance available on this.

A further separate charge is made if the employee is provided with fuel for private use.

The price of the car will usually be the total of:

  • the UK list price;
  • VAT;
  • delivery charges;
  • cost of accessories fitted before the car is made available;
  • cost, in excess of £100, of accessories fitted after the car is made available; and
  • less any capital contribution by the employee up to £5,000.

GOV.UK's Tax on company benefits webpage includes useful information on company cars.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.