Drive a company car? As from 6 April 2018, it'll probably become more expensive. Here's a look at how company car tax rates have changed in 2018/19 and what this means for your tax bill.
You have to pay tax on your company car:
Before we delve into the company car tax rates for 2018/19, here's a quick refresher.For employees, HMRC considers a company car to be a benefit-in-kind (known as BiK in short). In other words, it's a valuable perk over and above your salary, which is why you have to pay tax on it. Your employer (or your limited liability company) will deduct any company car tax due to HMRC at the source. Your car is taxed at different rates, called benefit-in-kind rates, depending on:
In 2018/19, the BiK tax rates have gone up across the board. The increase means you'll pay more tax on your company car.
The BiK tax rates for 2017/18 were lower in general. However, the 2018/19 increase is especially noticeable for low-emission cars.The table below shows the BiK tax rates for 2017/18. As you can see, a petrol car that emits up to 50 grams of CO2 per kilometre had a BiK tax rate of nine percent. In 2018/19, the BiK tax rate is now thirteen percent — a staggering four percent increase.The BiK tax rate was also three percent lower for cars that emit 51 to 75 g/km of CO2 and two percent lower for vehicles that emit between 76 and 184 g/km of CO2.
If you drive a diesel, there's even more bad news. In addition to the BiK tax rate, you may also have to pay a surcharge, called a diesel supplement.The diesel supplement was already in force in 2017/18. But, as from 2018/19, it has gone up from three percent to four percent. The diesel supplement applies if:
Let's say your company car has a P11D value of £20,000. To keep things simple, we'll use a car that has a petrol engine and emits 50 grams of CO2 per kilometre. Your highest rate of income tax is 20 percent.In 2017/18, you'd pay company car tax as follows:
In contrast, in 2018/19, the BiK tax rate for a petrol car that emits 50 g/km of CO2 is 13 percent.So, you'd multiply the P11D value of £20,000 by 13 percent, which would give you £2,600. The result means you'd pay 20 percent of £2,600, or £520 in tax — £160 more than last year.
If you've read this far, you'll probably have noticed that the BiK tax rate system penalises cars that produce lots of emissions. The more a car pollutes, the more tax you'll pay. In contrast, the cleaner your car is, the less tax you'll pay. Hybrid and electric cars are much cleaner than petrol and diesel. So, in the past, lower BiK tax rates applied to hybrids, while all-electric electric vehicles were tax-exempt. Unfortunately, because more people are buying hybrids and electric vehicles, HMRC now taxes them too (well, HMRC need to eat too, right?)
The BiK rates for electric cars and hybrids are calculated according to how many miles they can drive without producing any CO2 emissions, also known as called zero emission mileage. Electric cars never produce any emissions, so they're always taxed at the lowest rate. Curiously, the government plans to hike up BiK tax for electric cars and hybrids in 2019/20. But it'll slash it to two percent as from 2020/21. This means that, in 2020/21, company car tax on electric cars and hybrids will be significantly cheaper than a tax on company cars with other engine types. This table shows the BiK tax rates for electric cars and hybrids in 2018/19, 2019/20 and 2020/21
Here are a few tips on choosing a tax-efficient company car:
Company cars worth looking at include:
Want more options? This handy search tool lets you look up new cars by the applicable BiK tax rate — great if you're still unsure about which car to get.