Tax Benefits Explained: Company Cars
The current tax regime for employer-provided cars, or company cars, promotes the use of environmentally friendly vehicles. This system aims to encourage manufacturers to produce greener cars and provide tax incentives for employees and employers to choose fuel-efficient and eco-friendly options.
However, this regime comes with tax implications that can be tricky to navigate. With Fiander Tovell, we can help businesses navigate these intricacies to ensure you are making the most of this regime and incentivising your employees to take the more environmentally friendly option.
Below, we break down the tax implications in detail:
Key Rules and Regulations
Employer-provided cars are taxed based on their list price, adjusted according to CO2 emissions. Lower tax percentages apply for cars with lower emissions, and there are specific bands for hybrid vehicles with emissions up to 50 g/km, depending on their electric-only range.
For example, cars with 0 g/km CO2 emissions are taxed at 2% of the list price, while cars with 1-50 g/km CO2 emissions are taxed between 2% and 14%, depending on zero-emission mileage. Cars with 51-94 g/km CO2 emissions are taxed between 15% and 23%, with an additional 1% for every 5 g/km increase until a maximum of 37% is reached.
Diesel Cars
Diesel cars generally emit less CO2 than petrol cars, resulting in a lower tax percentage. However, due to higher levels of other pollutants, a 4% supplement is added to the list price percentage, unless the car meets the Euro 6d emissions standard. This supplement does not apply to hybrid cars. For example, a diesel car with a CO2-based charge of 22% will be taxed at 26% for 2024/25, with the maximum charge capped at 37%.
Additional Considerations
The list price includes delivery, VAT and any accessories provided when the car was first registered. Employee capital contributions up to £5,000 can reduce the list price. The taxable benefit to the employee also determines the employer’s liability for Class 1A National Insurance, which is 13.8% for 2024/25.
If an employer provides or reimburses fuel for private journeys, an additional tax charge applies. This is based on the same percentage used for the car benefit and is applied to a set figure (£27,800 for 2024/25). The provision of free fuel can be tax inefficient unless there is high private mileage. Reimbursements solely for business travel fuel do not incur a tax charge.
How We Can Help
We offer advice on various aspects, including whether to provide a company car or use a private car for business mileage, the tax efficiency of employee contributions and the provision of private fuel with a company car. For a more detailed breakdown into these policies, please see our guide.
For guidance, please contact our Commercial Client Director, Fabrice Legris, at fabrice.legris@fiandertovell.co.uk for more information on how we can help with the above and other tax-related queries.