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How Does Company Car Tax Work?

Company car tax rates are party based on a cars carbon dioxide emissions, which is then converted to a percentage payable on top of the cars P11d value. Carbon emissions will vary depending on the age of the car and the type of fuel used, so different models of car will be placed in different company car tax bands.

Carbon dioxide figures for company cars are checked against Benefit in Kind rates issued by HMRC. Benefits in Kind are benefits employees may receive by an employer, that are not included in a contracted salary. When checked against the Benefit in Kind figure, the Carbon Dioxide figures will be converted to a percentage, then applied to this figure. 

This figure then determines the annual tax liability for your company car. Those earning £32,010 PA or less will pay 20% of this figure in tax, whereas those earning more will pay 40%. This rises to 50% for those earning £150,000 PA. This percentage is generally paid by being deducted from a monthly salary. 

When providing or choosing a company car it’s important to take estimated Co2 emissions into account. Diesel engines are often favoured, as on average they produce fewer emissions. However, they often come at a higher price than vehicles running on petrol, meaning they may have a higher P11d price. If choosing a diesel model, make sure the P11d price doesn’t offset any benefits the lower emissions may have on the company car tax you pay. It’s a good idea to use a company car tax calculator in order to best know how much money you’ll be paying.