Understanding Company Car Tax

When organisations provide a car as a benefit to their employees, HMRC class it as a Benefit in Kind (BiK) and as a result, drivers need to pay a company car tax. Our online quotation system will automatically calculate the correct BiK value of the car you’ve chosen based upon the CO2 emissions, additional options, fuel type, P11D value and applicable tax rate according to the salary you’ve entered in the system. It will also take into account whether or not the car has an electric battery as these cars have a significantly lower Benefit in Kind amount compared to fossil fuelled cars.

In 2019, the UK Government announced significant tax efficiencies to encourage company car drivers to move into Electric vehicles (EVs) and so from April 2022, company car tax for pure electric cars is just 2% until April 2025.

Please note that the Benefit in Kind rates beyond 6th April 2025 have not yet been confirmed by Government. If your new or existing Tusker agreement takes you beyond 6th April 2025, Tusker’s gross pricing remains fixed for the remainder of your term. However, if Government increases BIK rates as we have stated in your scheme documentation, your net monthly salary sacrifice reduction will increase by the amount which the Benefit in Kind rate has increased.

How is it calculated?

For cars with CO2 emissions of 75g/km and below, you pay tax on a Benefit in Kind value. This value is determined by the cars P11D value and then multiplied by the HMRC BiK rate (which is based on the CO2 emissions and fuel type).  This figure is then multiplied by your tax rate (e.g. 20%, 40% or 45%) to calculate the annual amount of company car tax to be paid.

For cars with CO2 emissions above 75g/km, the taxable benefit is calculated based on the the higher value of either the gross salary sacrifice amount or the Benefit in Kind value explained above.

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When do I pay the Benefit in Kind tax?

You don’t pay anything until you’ve received delivery of your car.

There are 2 main ways of paying company car tax and it’s important you check with your employer as to which will apply as this will affect whether you need to contact HMRC to advise them about your car.

Deduction (tax) at source – this means it’s deducted directly from your monthly salary by your employer and you won’t need to notify HMRC.

Via PAYE coding notice – HMRC will collect your company car tax by issuing you with an amended PAYE Coding Notice, which means that the tax generated by the Benefit in Kind will reduce your personal tax free allowance.

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Notifying HMRC

If your employer doesn’t deduct at source then HMRC need to be notified that you have this employee benefit. Most employers will contact HMRC with this information via the P46 (Car) form but you should confirm this with your Employer as it is the driver’s responsibility to ensure HMRC are informed of any changes.

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