Employees who use company cars have to pay company car tax which is based on the amount of carbon dioxide (CO2) that their car emits. This is a form of taxing the emissions from cars which is why it is so important to consider what type of car you are driving when you are taking a company car.
It is important to understand how company car tax is calculated and what you can do to ensure you pay the right amount of tax. The amount of tax you pay is based on the list price of the car, the type of fuel used, the CO2 emissions and the number of kilometres driven in the qualifying period.
The list price of the car is taken from the cost of the car when it was brand new and this is then divided by 10 and multiplied by the P11D tax band and the accompanying percentage rate. For example, the P11D tax band may be 0-50 and the percentage rate is 10%.
The rate of company car tax changes depending on the type of fuel used. For petrol cars, the rate is an average of 37%. For diesel cars, the rate is as high as 41%. This is because diesel cars emit more CO2 than petrol cars. However, there are incentives in place for electric and hybrid cars, as they are considered to be more environmentally friendly.
The amount of CO2 that is emitted from the car is taken from the official tests conducted by the government. This number is then multiplied by the P11D range band and the percentage rate. This will give you the amount of tax you will have to pay.
Finally, the number of kilometres driven in the qualifying period is also taken into account when calculating the amount of tax you have to pay. For example, if you drove 2,000 kilometres in the qualifying period and the rate of tax for petrol cars is 37%, then you will have to pay 37% of the tax for the car.
Tax Rebates
It is important to know that there are tax rebates available which can help you to reduce the amount of tax you have to pay. These tax rebates are available on cars with higher CO2 emissions and they can be used to reduce the tax you have to pay.
The main type of tax rebate is the capital allowance. This is a type of tax relief which allows you to claim a percentage of the cost of the car against your tax bill. This percentage can be up to 100%. However, it is important to note that the capital allowance only applies for the first year of ownership.
There are also tax rebates available for cars with higher CO2 emissions. These rebates are intended to encourage people to invest in cars with lower emissions. The rates vary depending on the CO2 emissions, but typically the rebate can be up to 35% of the tax payable.
It is also important to note that a company car tax mitigation scheme may be available which allows you to reduce the amount of tax that you have to pay on your company car. These schemes are available from the government, but it is important to make sure you are eligible for one before investing in such a scheme.
Tax Savings
It is also possible to make tax savings on company cars by choosing to lease a car rather than buying one. This is because leasing a car usually results in lower monthly payments, which means you can reduce the amount of tax you have to pay. This can be a great way to reduce your company car tax bill.
There are also other ways in which you can reduce your company car tax bill. For example, you may be able to reduce the amount of tax you have to pay if you opt for an older model of car. This is because these cars tend to be more fuel efficient and emit less CO2.
You may also be able to reduce the amount of company car tax you pay if you choose a car which is covered by a manufacturer’s warranty. This means that you will be able to get the repairs and maintenance covered by the warranty and this could help you to reduce the amount of tax you have to pay.
Finally, it is important to remember that you can also reduce your company car tax bill by opting for a fuel-efficient car or opting for a car with a lower P11D tax band. This can help you to reduce the amount of tax you have to pay on your company car.
Tax Allowances
It is important to know that there are various tax allowances available that can help you reduce the amount you have to pay. One such allowance is the enterprise management incentive (EMI) tax allowance, which is available for small to medium sized businesses.
This is a type of tax credit which is available for anyone who runs their own business and who invests in a company car. The credit is based on the amount you invest in the car, and it can be up to 21%. This means that you can reduce the amount of tax you have to pay on your company car.
Another tax allowance available is the value added tax (VAT) allowance. This allowance is available for both business owners and employees and it is based on the value of the car being used for business purposes. A company can apply for the VAT allowance, but it must be used for business and not for personal use.
Finally, there is the employee’s car tax allowance (ECTA), which is available for employees who use company cars. This allowance is based on the amount of CO2 that is emitted from the car, and it can be up to 25% of the amount of tax you have to pay. This can help to reduce the amount of tax you pay on your company car.
Tax Advice
When it comes to company car tax it is important to seek advice from a qualified accountant or tax adviser. They will be able to provide you with advice on the best way to reduce the amount of tax you have to pay, and they can help you to get the most out of your company car.
It is also important to make sure that you keep up to date with any changes in the tax system, as these can affect the amount of company car tax you have to pay. This means that you need to make sure you are aware of any changes which could impact the amount of tax you have to pay.
Finally, it is important to remember that you can make use of various tax allowances and rebates to help reduce the amount of company car tax you pay. These can be a great way to save money on the amount of tax you have to pay.
Tax Calculators
It is important to note that there are various tax calculators available which can help you estimate the amount of company car tax you will have to pay. These calculators are a great way to get an idea of how much tax you will have to pay and they can help you to budget accordingly.
It is also important to remember that the rate of tax paid on company cars can change from year to year. This means that it is important to keep up to date with any changes to the amount of tax you will have to pay. You can use a company car tax calculator to help you keep track of any changes in the amount of tax you will have to pay.
Finally, it is also important to note that you should always seek professional advice if you are unsure about how much company car tax you will have to pay. This can help you to make sure you are paying the correct amount of tax and not overpaying or underpaying.
