How to manage company car tax as a small business owner

Here, we look at what company car tax is and the new changes you should know about.

You will have to pay a tax for having a company car

You will have to pay a tax for having a company car

If you have a company car, then the chances are that you will have to pay company car tax. But, what is company car tax? And how much will you have to pay?

In this article, we’re going to look at what the tax is, the new changes you should know about, whether petrol or diesel impacts how much you pay in company car tax, and the best way to reduce company car tax.

What is company car tax?

It’s fairly self-explanatory: a tax that you pay for having a company car. If you use your company car for personal journeys, including travelling to and from work, then you will have to pay company car tax.

How much tax you have to pay depends on three things:

  • How much CO2 your car emits
  • Your personal tax bracket (20 per cent or 40 per cent)
  • The P11d value of the car – this is
    – The list price
    – Delivery fees
    – Road tax
    – Any additional extras (such as satnav)

You can calculate how much you will have to pay in company car tax by doing the following;

  • Take the P11d value of the car and multiply it by your company car tax rate – this will give you your Benefit-in-Kind (BIK) rate
  • Then, multiply your BIK rate by your personal tax rate

This will give you how much you will be paying in company car tax each year. We’ve provided a BIK rate table for you slightly further down this article to make things easier.

Changes to company car tax 2017

In 2016 the government announced changes to company car tax. There were to be 15 new BIK bands, with a majority of them on the lower end of the scale. This was, according to the government, to make things more even when it came to cars that emit less CO2.

When the previous changes came into effect there were few cars that emitted less than 100g/km of CO2. This meant that there were fewer bandings on the lower end of the BIK table so those with low CO2 emissions would pay considerably less in company car tax. This also acted as a good incentive to encourage businesses to invest in lower-emission vehicles. However, as technology progressed and cars emitted less emissions, it meant that very little was being paid in company car tax.

And so the government have introduced more bands. You can have a look at the new bands below. These have already come into effect and did so at the start of the month (April 2017). The new changes will only affect vehicles that have been registered on or after 1st April 2017, so if you had a company car before that then the old BIK rates still apply.

Which is better for company car tax; petrol or diesel?

It’s understandable that you would want to save as much money when it comes to company car tax as possible, so does the type of fuel your company car have affect it?

Petrol cars have long since been considered less efficient and less environmentally friendly than their diesel counterparts. However, as you can see from the table above, if you have a petrol car then your BIK rate is lower than if you had a diesel car.

Petrol cars are typically more likely to be smaller city cars. These tend to be cheaper and therefore will more than likely have lower P11d values which equates to lower company car tax.
Diesel cars on the other hand, tend to be bigger more executive saloon cars that are going to be travelling long distances. These are usually more expensive than the smaller petrol cars and therefore will have higher P11d values. Also, if you’ve been following the news recently you would have seen that diesel cars are much less environmentally friendly than first thought. So the company car tax is more likely to be more expensive than with a petrol car.

However, we don’t recommend that you choose your next company car based on the above alone. Both fuel types are suited to different types of driving so we recommend that you choose a fuel type that will be more efficient for you.

How can I lower my company car tax?

There are a few ways you can lower it. While you can’t really lower your tax bracket nor can you necessarily change the fuel type of your car, there are a few things you might want to consider to lower your company car tax.

Opt for a cheaper car

This sounds obvious, but even forgoing something such as a satnav can have an impact on the P11d value. A lower P11d value means potentially lower company car tax.

Choose a car that emits less CO2

You don’t have to go for an electric car to lower your carbon footprint. There are plenty of petrol cars that emit a low amount of CO2 and a fair few diesel cars that are the same. If you want to lower your company car tax then we recommend looking at a car that emits a lower amount of CO2.

So hopefully that has cleared a few things up about company car tax. The new changes will only affect those cars that are registered from April this year (2017) and if you already had a company car before that then your current company car tax rate still stands. While whether your car runs on petrol or diesel can have an impact on how much you pay in company car tax, it isn’t the only factor and therefore if you do want to lower your company car tax, we recommend looking at a car that emits less CO2 or one that has a lower P11d value.

Debbie Kirkley is joint director of OSV Ltd.

Further reading on company vehicle

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