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Company Car Tax

Company Car Tax can be confusing if you are not sure about it, we have listed some frequently asked questions and a car tax terms guide and some useful links which will help you understand a bit more about it.

Q: What is company car tax?

A: Company Car tax is payable on a certain percentage of the total P11d value of your car. The percentage is determined based on the emissions of the car. People earning £37,400 per year or less will have to pay 20% of this amount in tax, and people earning over that amount will have to pay 40%. This is normally deducted each month from your salary.
Please click on the link below which you will find very useful.

Q: Are there any dispensations for low-emission cars that aren't 100% electric?

A: From April 2010, the percentage of list price to be taxed will be halved if CO2 emissions are between one and 75g/km. This will go on for five years, although at this time there aren't any cars for sale in the UK with such low emissions.

Q: Is there a maximum price cap on the amount taxable on a company car?

A: Yes, but this will not be not for long. The price cap currently stands at £80,000 - but after April 2011 this will be abolished and the whole P11d value will be taxable.

Q: Why are diesels so popular?

A: Diesels produce less CO2, so the tax bill should be smaller. However, they are usually significantly more expensive to buy than an equivalent petrol version, so you have to make sure the higher P11D price doesn't outweigh any advantage from a lower tax band. You also need to do your homework on fuel costs, because diesel costs are more at the pumps than petrol and you will need to meet the predicted fuel economy figures from the manufacturer to gain a real benefit.

Q: Will electric cars be exempt from company car tax?

A: Yes. Following an announcement made by Alistair Darling last year in the pre-budget report, electric cars will be exempt from company car tax for five years, beginning in April 2010.

Q: How about hybrid cars?

A: Hybrid cars currently conform to the same tax rules as petrol cars. This means they sit in lower bands, so you'll pay less tax for owning them.

Q: Are there rules for vans?

A: Light commercial vehicles, including double-cab pick-up trucks with payloads in excess of 1000kg, are classed as a benefit in kind if they are also provided for private use.

Unlike cars, tax on use of commercial vehicles provided by an employer is levied at a flat rate. Currently this is £3000 if the van is less than four years old at the end of the tax year. Therefore a basic rate taxpayer would owe the treasury £600 a year, while a higher rate taxpayer would have an annual bill of £1200. If fuel is also provided by the employer or private use, the tax payable on this is £700 for a 20% taxpayer, and £1400 for a 40% taxpayer.

Q: So how much should I expect to pay in company car tax?

A: Please click on the link below which will help you calculate this information.

Familiar company car tax terms

Basic rate - for employees earning under 37,401 a year, a lower rate of tax is payable. With regards to company car tax, they are eligible for a 20% tax rate.

Benefit in kind (BIK) - this is any benefit which employees receive from employment but are not included in a salary. The obvious example in our case is company cars, which are taxed according to the income of the employee.

Emissions - the amount of gas the car emits from the exhaust. Measured in terms of CO2 for company car tax purposes.

g/km - the level of carbon dioxide emitted by a car is measure in grams per kilometre.

Higher rate - for an employee earning over £37,401, a higher rate of tax is payable. With regards to company car tax, this means paying 40% tax.

P11d - this is the form that each employer must fill in annually and send to the tax office.

P11d value - this is the value of your car including RRP, VAT, delivery and any extras (such as metallic paint or satellite navigation). It does not include road tax or first registration fee.

Recommended retail price (RRP) - this is the amount the car manufacturer thinks its car is worth. It's likely that some RRPs will be very different from the actual price the customer pays for the car thanks to heavy discounting, so be aware that you may end up paying far higher tax on your car than you thought.

Vehicle Excise Duty (VED) - this is payable on all cars, and is based on the CO2 output of the car in question.

Useful Car Tax Links

Taxation of Company cars (Employees Guide)
Income Tax and Company Vans
Company Car and Car fuel Benefit Calculator
Vehicle Excise Duty Calculator
New Advisory Fuel Rates
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