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