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How is the taxable benefit calculated on company cars?
Tax is chargeable where, because of your employment, a car is made available to you by your employer and the vehicle is also available for your private use. It is treated as a “benefit in kind” (BIK), an addition to your income. There is a further tax charge if your employer provides fuel for private use. Private use includes ordinary commuting to and from work and any private travel undertaken. Details are provided on the GOV.UK web site, while HMRC provides a company car and car fuel benefit calculator.
The car benefit is calculated on the:
- list price of the car (including any accessories);
- the relevant carbon dioxide emissions; and
- the type of fuel the car uses.
The list price is not the price paid for the car, but the figure used to calculate the value of the car as a benefit to you. It will be the same figure each year you have the car, unless accessories are added in later years. The list price of the car will usually be the total of:
- the UK list price;
- delivery charges;
- the cost of accessories fitted before the car is made available (but these may be disregarded if they are fitted to allow a disabled employee to use the car); and
- the cost, in excess of £100, of accessories fitted after the car is made available;
- less any capital contribution by the employee up to £5,000.
The carbon dioxide emissions associated with the car and the fuel type will dictate the level of charge applicable. For 2018-19, for example, the charges are between 13% and 37%. A further separate charge is made if the employee is provided with fuel for private use. The percentage charge referred to above is used to calculate any fuel charge. You can now calculate the taxable value of car benefits and car fuel benefits using HMRC's company car and car fuel benefit calculator.
To take a simplified example of a 1.5 litre diesel car with CO2 emissions of 90g/km, a list price of £24,000 including VAT and accessories, available throughout the 2017-18 tax year, to which the employee makes a capital contribution of £4,000 but pays nothing else, the calculator works out the company car benefit at £4,720. The annual tax liability would be £944 at 20% or £1,888 at 40%.
If the employer also pays for private fuel, the company car fuel benefit charge would be £4,520 and the tax payable would be £904 at 20% or £1,808 at 40%. HMRC warns that this is not an exact calculation of the tax liability on the car and car fuel benefit, the actual tax liability depends on individual circumstances.
If you make a contribution towards the purchase of the car and/or accessories, this will reduce the taxable benefit. A reduction of the list price to reflect the capital contribution made is limited to £5000, or the actual amount paid by the employee, whichever is less. So if you pay £6,000 towards the purchase of your company car, HMRC will only reduce the list price of the car by the maximum £5,000 when calculating the benefit arising.
If your employer has provided you with a company car because you are disabled, the benefit arising on this may be exempt from tax. For this to apply, your employer will need to be able to confirm that:
- the car has only been made available to you because of your disability;
- the car has been selected or adapted to the needs of your disability (note that this can include an automatic car if, because of the disability, the only car that you can drive is one that has automatic transmission);
- the terms on which the car is made available to you prohibit all non-business use except travel to and from work, or to and from a place where work-related training is provided; and
- no other non-business use of the car is made.
The Low Incomes Tax Reform Group warns that his exemption is highly restrictive as it prohibits any private use of the car. If you need to drive an automatic car because of your disability, the calculation of benefit will use the emissions of either the car you are driving or those of the manual car equivalent, whichever is the lowest. The list price of the manual car can also be used if this is lower than the automatic list price equivalent.