Tax-efficient company cars

Here's a simple guide to help ensure you pick the right car for your business needs and budget.

Company car tax can be confusing at the best of times – whether you’re getting your first fleet vehicle or upgrading an old one – so in collaboration with leading car selling service, has put together this easy-to-understand guide to help ensure you pick the right make and model to fit your business needs and budget.

What is company car tax?

A company car is considered a benefit in kind (BIK); that is, something you get in addition to your annual salary. This means, just like your wages, it’s going to be taxed by Her Majesty’s Revenue & Customs (HMRC).

Company car tax is charged on a percentage of the total value of your car as declared on your P11D form – the year-end benefits and expenses form you or your employer sends to HMRC – and the car’s P11D value is based upon the car’s list price, VAT, delivery and options costing £100 or more, as well as its CO2 emissions.

This is why diesel engines have always been a good option for company car drivers. Not only do they often return more miles-per-gallon of fuel, their lower CO2 emissions mean they’re also more cost-effective when it comes to company car tax.

It’s worth noting that diesel cars are supplemented under the current tax rules, but supplements are to be scrapped from 2016/17. It’s unclear what the full implications of the VW emissions scandal will be too, so you’ll need to consider this when choosing your car.

Hybrid and electric cars are also growing in popularity, but while the tax breaks are good on such eco-cars, they may not be suitable if you have a high annual mileage.

So, as you can see, it’s important you pick the right car to not only make sure you don’t get stung at the petrol pumps, but also at the end-of-year tax returns.

Calculating car tax

You can calculate your company car tax in three simple steps:

  • Work out the vehicle’s P11D value
  • Multiply the P11D value by the car’s company car tax rate (dependent on CO2 emissions) – this will give you your BIK amount.
  • Multiply the BIK value by your personal tax rate (which will be 20 per cent, 40 per cent or 50 per cent, depending upon how much you earn).

The figure you’re left with will be the amount of company car tax payable.

So, if you’re looking for a company car, you’ll want to know which makes and models offer the most tax efficient options. Here are some of our favourites:

Skoda Octavia

£16,310/£179 per month

The Skoda Octavia continues to punch above its weight by equalling, and arguably bettering, its more prestigiously-badged contemporaries. Ultra-reliable, loads of room, and great to drive.

Audi A3

£18,900/£240 per month

If you’re after something more compact, and simply must have a premium badge, it’s probably worth forking out the extra for the Audi A3. Although cheaper to own and run than the A6 Avant, it doesn’t cut corners when it comes to refinement and is available as a hybrid.

VW Passat Estate

£23,745/£279 a month

If it’s load space and reliability you’re after, look no further than the VW Passat Estate; an efficient engine, premium interior and a huge load space make this the best of its kind for a company car.

Tesla Model S

£49,380/£1,079 per month

The Tesla Model S is not only a sure-fire head-turner, it’s also a luxury eco-car with an electric engine that boasts a range of 250 miles. Although it comes with a hefty price tag upfront, it could save you a bunch in fuel costs; this could be the company car of the future.

Related information

Company car insurance rules – What is the difference between fleet car insurance and business car insurance? As an owner-director of a small business, which one is right for you and your employees?
Best company cars 2023 – Which cars win the race when it comes to tax benefits, eco credentials and value for money?

Related Topics

Tax & Vat

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