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What tax is charged for the use of a company car?

This article looks at the taxable value of the car and the new percentage charges, taxes for private fuel and importantly, how going green could save you money.

The provision of a company car is one of the many benefits that can be offered to employees. As an employer, if you provide a company car or fuel for your employees’ private use, you’ll need to work out the taxable value. It is important to note that you are not only taxed on the list price of the car, but also on its CO2 emissions.

Broadly speaking, the intention here is to:

  • Encourage manufacturers to produce cars which are more environmentally friendly and
  • To give both employee drivers and their employer a tax incentive to choose more environmentally friendly cars

Taxable value of the car

Company cars are taxed according to the list price of the car, but are graded according to the level of its carbon dioxide (CO2) emissions. The fuel type of the car is also taken into consideration, with diesel cars currently paying an additional 3% supplement.

The percentage charge for most cars has generally been between 10% and 35%. However, changes have been announced to emissions tables, which may see those percentages rise. The new emissions percentage charges will extend to the 2019/20 tax year.

The emissions table for the current 2014/15 tax year is as follows:

2014/15 Percentage of list price charged as a benefit
No CO2 emissions 0%
75g/km or less 5%
76 – 94g/km 11%
95g/km 12%
Then every 5g/km to 210 or more +1% to 35%

The emissions table for the 2015/16 tax year is as follows:

2015/16 Percentage of list price charged as a benefit
Up to 50g/km 5%
51 – 75g/km 9%
76 – 94g/km or less 13%
Then every 5g/km to 210 or more +2% to 37%

Please note that diesel cars currently have a 3% supplement added to these percentages.
The maximum still cannot exceed 35% and 37% respectively.
The diesel supplement will no longer apply from 2016/17.

Reimbursement to reduce the benefit

Generally, where the employee is required to pay an amount of money for the private use of the car, the amount can be deducted from the car benefit. However, new HMRC legislation in the Finance Act 2014 will see this change. The new legislation states that a deduction is only given if the payment is made within the same tax year. This applies for 2014/15 and subsequent years; meaning that private use contributions must be paid before the end of the tax year to have effect. This applies to both cars and vans.

Private fuel

There is a further tax charge where a company car user is supplied with private fuel or is allowed to claim reimbursement of the cost of fuel used for private journeys. The fuel scale charge is based upon the same percentage used to calculate the car benefit and is applied to a set figure. The set figure is currently £21, 700 and is increased year on year.

The rules on reimbursement do not apply in the same way to the provision of private fuel. Only full reimbursement of any private fuel element is taken into consideration, thus removing the benefit. Partial deductions are not effective.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.

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