Taxes

# The Tax Implications of Having a Company Car

Updated: 1 April 2019

A company car can be a great perk. Just make sure you know the tax implications of a company car.

Here's what you need to know to satisfy the HMRC.

## What are the tax implications of a company car?

A company car has the following features:

• You use it for both business-related and personal travel
• You take it home with you
• The HMRC considers it to be a benefit in kind. It forms part of your income and you have to pay tax on it

## Implications for employees: How do I calculate company car tax

If you’re an employee, your employer will deduct any company car tax due to HMRC at source. Similarly, you’ll need to deduct company car tax at source if you’re self-employed but trade as a limited liability company.

Company cars are taxed at different rates, depending on:

• The car’s taxable value, known as the P11D value
• Carbon dioxide (CO2) emissions
• Engine type — petrol, diesel, hybrid or electric

Automatic, accurate mileage reports.

### Company car tax calculation: Example

Let’s say your company car has a P11D value of £15,000. You found this out using HMRC’s company car and car fuel benefit calculator.

According to the manufacturer, the car emits 50 grams of CO2 per kilometre. It has a petrol engine. Your highest rate of income tax is 20 percent.

To calculate how much tax you pay on your company car, you must:

• Find out the car’s P11D value.
• Multiply the P11D value by the company car tax rate. Since the car emits 50g/km of CO2 and has a petrol engine, the rate in this case is 9 percent.
• Multiply the above answer by your highest personal tax rate. In this case, this is 20 percent.

So, the amount of tax payable on your company car is: (15,000 x 9 percent) x 20 percent = £270

## Company car tax implications for sole traders

By definition, a company car belongs to your employer. There’s no concept of company car — and therefore no company car tax to pay — if you’re self-employed as a sole trader. This is because there’s no legal difference between you and your business.

That said, you can deduct part of your car’s running costs using one of the following methods:

### Method 2: Actual expense

You can only use the actual expenses method to claim a mileage deduction if you’ve never claimed using the AMAP rates. You can only switch method if you change your vehicle.

• Step 1: Tot up the cost of fuel, servicing, car insurance, VED and the cost of any repairs you made during the tax year.