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Company Car Tax

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Assuming a similar retail price, the less CO2 a vehicle emits the less tax the company car driver will pay.

Diesel cars have traditionally had a lower level of CO2 emissions than their petrol counterparts although emitted a higher level of 'local pollutants' such as particulates and NOX. This has prompted the Government to add a 3% levy to the 15% tax threshold for all diesel models.

This 3% increase not only has an impact on the amount of company car tax the driver pays but also the taxation on employer-provided 'free' fuel and National Insurance Contributions paid by the employer.

How does company car taxation work?

There are currently 20 different taxation bands for differing levels of emissions ranging from 15% - 35% (see table below). These percentages are then applied to the P11D (tax list price) of the new car to give the Benefit-in-Kind (BIK) taxation value.

The BIK is then calculated at the company car driver's personal tax rate of either 22% or 40% to work out how much the driver pays each year.

In an attempt by the Government to encourage company car drivers to choose low CO2 emitting cars the minimum threshold has been steadily reduced.  From the start of the 2008/9 tax year a new lower band of 10% will be introduced for those vehicles with emissions of 120g/km and below.

g/km of CO2  % of List Price
2006/07 2007/08 2008/09
- - Less than 121 10*
140 140 135 15*
145 145 140 16*
150 150 145 17*
155 155 150 18*
160 160 155 19*
165 165 160 20*
170 170 165 21*
175 175 170 22*
180 180 175 23*
185 185 180 24*
190 190 185 25*
195 195 190 26*
200 200 195 27*
205 205 200 28*
210 210 205 29*
215 215 210 30*
220 220 215 31*
225 225 220 32*
230 230 225 33**
235 235 230 34***
240 240 235 35****
* Add 3% if vehicle runs solely on diesel.
** Add 2% if vehicle runs solely on diesel.
*** Add 1% if vehicle runs solely on diesel
****Maximum charge so no diesel supplement.

N.B. There is a 3% discount for hybrids (petrol/electric cars such as the Toyota Prius) and a 2% discount for LPG and a 6% discount for electric only cars, but as list prices are higher, you may not benefit in tax terms.

Use this tax calculator to calculate the tax liability for the vehicle you are considering.
 

'Free' Fuel Benefit

Employees face a further tax if their employer provides 'free' fuel for private motoring. This could be as a result of using a company fuelcard for example and not repaying the private usage element, or if the employer pays for travel between home and work.

The taxable benefit is now based simply on the Government derived figure of £14,400, multiplied by the same percentage derived from the CO2 table above.

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