What is classed as a company car?

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A company car is a vehicle provided by an employer to an employee, which is available for their private use.

Usually referred to as a Benefit In Kind (BIK) this is a perk that is in addition to a normal annual salary. All BIK’s are subject to tax in addition to salaries etc.

How is it taxed?

Tax on company cars, is normally collected via the annual salary by way of a restriction to personal allowances. The employer has a duty to inform HMRC where a company car has been provided so that HMRC can make the necessary adjustment to the tax code number.

How much tax is paid on a company car?

The amount of tax paid on a company car is determined by reference to the manufacturer’s list price, any extra’s and the Co2 emissions. If a capital contribution is made to the cost of the car, or an agreement is made to pay a monthly contribution towards the running costs of the car, the BIK will be reduced to reflect this.

Once the level of BIK has been determined, the amount of tax paid depends on the highest rate of tax. If this falls into the 20% income tax band (i.e. earning no more than £31,786 per year after personal allowance), the tax paid will be 20% of the cars P11D value. Higher rate taxpayers (£31,787 – £149,999) will pay 40% of the cars P11D value and those who earn over £150,000 will pay 45%.

Example

BMW 3 SERIES SALOON DIESEL 2ltr
OTR: £31,670
Co2: 116 g/km
BIK rate: 23%
BIK value: £7,271

For a basic rate taxpayer, the BIK will £1,454 and for a higher rate taxpayer it will be £3,272.

PORCHE PANAMERA HYBRID 3ltr
OTR: £79,770
Co2: 56 g/km
BIK rate: 11%
BIK value: £8,769

For a basic rate taxpayer, the BIK will £1,754 and for a higher rate taxpayer it will be £3,946.

How the tax for Benefits In Kind work

Employment£20,000
Employment (BIK)£8,000
Personal Allowance(£10,000)
Total Taxable Allowance£18,000
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