The Best Company Car for UK Tax Purposes
Thinking of replacing your company car with a brand new one? Or wondering whether you should even bother having a company car anymore?
Here’s a rundown of the company car tax rules in place in the UK in the 2019-20 tax year and a look at the best, most tax-efficient company cars on the market today.
It used to be that having a company car was a great perk. Brand-spanking new Audi or BMW? Paid for by the company? Yes, please. Right?
Sadly, changes to the company car tax rules and a government crackdown on air pollution mean you now have to be extra careful when choosing your company car. Picking the wrong one could add a significant chunk of money to your tax bill.
Here’s a rundown of the company car tax rules currently in place in the UK. We’ll then do the maths and find out the best, most tax-efficient company cars you can buy in 2019.
What are the company car tax rules in the UK?
HMRC treats a company car as a benefit-in-kind. This is because it’s a valuable benefit you’re getting in addition to your salary. The upshot is that you’ll have to pay tax on it, either via the PAYE system (Pay As You Go) or, if you’re self-employed, by declaring it when you file your self assessment tax return.
The amount at which your company is taxed is called the benefit-in-kind rate. Which rate applies will depend on:
- Your car’s P11D value, or taxable value. Namely, its purchase price, VAT and delivery fees less the cost of first registration and road tax (that is vehicle excise duty or VED). HMRC has a company car and car fuel benefit calculator you can use to find out your vehicle’s P11D value.
- Your car’s carbon dioxide emissions.
- Fuel type — that is whether your automobile has a petrol, diesel, hybrid or electric engine.
- Your income tax bracket.
What benefit-in-kind rates apply to UK company cars in 2019-20?
Company car benefit-in-kind rates went up in 2018-19. And they’ve gone up again in 2019-20. This means that this tax year, you may have to pay even more tax on your company car than you did last year.
The table below sets out the applicable benefit-in-kind rates for 2019-20 based on your company car’s engine type and how much carbon dioxide it emits:
|CO2 Emissions||% of P11D – Petrol||% of P11D – Diesel|
|0 – 50||16||19|
|51 – 75||19||22|
|76 – 94||22||25|
|95 – 99||23||26|
|100 – 104||24||27|
|105 – 109||25||28|
|110 – 114||26||29|
|115 – 119||27||30|
|120 – 124||28||31|
|125 – 129||29||32|
|130 – 134||30||33|
|135 – 139||31||34|
|140 – 144||32||35|
|145 – 149||33||36|
|150 – 154||34||37|
|155 – 159||35||37|
|160 – 164||36||37|
Additional charges on diesel cars
If your company car has a diesel engine, you may also have to pay a surcharge called the diesel supplement. In 2019-20, the diesel supplement is 4 percent.
The diesel supplement applies if your car:
- Was registered between 1 January 1998 and 31 August 2017.
- Was registered on 1 September 2017 or after and isn’t RDE2-certified (Real Driving Emissions 2). RDE2 certification finds out how much nitrogen oxide the car emits under real driving conditions. To be RED2-certified, your car must emit less than 0.08 grams of nitrogen oxide per kilometre.
- Has a diesel-only engine. In other words, the surcharge doesn’t apply if your car is a hybrid.
The diesel surcharge and the higher benefit-in-kind rates on diesel engines are part of the government’s efforts to tackle air pollution in the UK.
In recent testing, nitrogen oxide — which is linked to 40,000 premature deaths a year — was found to be over legal limits in 33 local authority areas across England. In London alone, it’s estimated that about 2 million people, 400,000 of whom are children, are exposed to toxic levels of air pollution every day.
Diesel cars are one of the main sources of nitrogen oxide in the air. So, it’s not surprising that the government is trying to encourage British drivers to ditch them by hitting them in their wallets.
Calculating tax on your company car: Example 1
Let’s say you have a company car with a petrol engine. It has a P11D value of £15,000 and emits 60 grams of CO2 per kilometre. This means its benefit-in-kind rate in 2019-20 is 19 percent.
Your company car’s taxable value is £15,000 x 19 percent. That’s £2,850.
The highest rate of tax you pay is 20 percent. So, you’d pay 20 percent of £2,850. That’s is £570.
This means your company car will increase your tax bill by £570 in 2019-20.
Calculating tax on your company car: Example 2
Let’s say you have a company car with a P11D value of £15,000 that emits 60 grams of CO2 per kilometre. However, it has a diesel engine. This means its benefit-in-kind rate in 2019-20 is 22 percent.
Again, the highest rate of income tax you pay is 20 percent.
Your company car’s taxable value would be £15,000 x 0.22, that is £3,300.
So, having this company car would increase your 2019-20 tax bill by £660.
How much company car tax do you pay on hybrid and electric vehicles?
Like petrol and diesel company cars, hybrids and electrics also attract benefit-in-kind tax. That said, this is worked out differently.
The applicable benefit-in-kind rate depends on how many miles the car can drive without producing any emissions. This is known as zero-emission mileage. Electric cars never produce emissions, so they’re always taxed at the lowest rate.
For the 2019-20 tax year, hybrid and electric car benefit-in-kind rates were hiked up significantly. The lowest benefit-in-kind rate is 16 percent. This is the same as the lowest benefit-in-kind tax on a car with a petrol engine that emits up to 50 grams of CO2 per kilometre.
The upside is that the rates will be slashed next year. And this will make hybrids and electrics the cheapest company cars for tax in the UK.
The following table sets out the benefit-in-kind rates for hybrid and electric cars in 2019-20 and in 2020-21:
|CO2 Emissions||Zero Emission Mileage||2019/20||2020/21|
|1 – 50||> 130||16%||2%|
|1 – 50||70- 129||16%||5%|
|1 – 50||40 – 69||16%||8%|
|1 – 50||30 – 39||16%||12%|
|1 – 50||<30||16%||14%|
|51 – 54||19%||15%|
|55 – 59||19%||16%|
|60 – 64||19%||17%|
|65 – 69||19%||18%|
|70 – 74||19%||19%|
Calculating tax on an electric company car: Example
Let’s say you buy a company car with an electric engine. This means it produces zero emissions. Its P11D value is £25,000. The highest rate of tax you pay is 20 percent.
In 2019-20, you’d pay tax on your company car as follows:
£25,000 x 16%: that’s £4,000 taxed at 20 percent. So, an electric company car would add £800 to your tax bill.
But in 2020-21, your benefit-in-kind rate will drop to a mere 2 percent. This means it’ll add only £80 to your tax bill.
So is it worth having a company car in the UK?
Well, company cars are still a great perk to have. You could drive a much nicer car than you’d be able to afford, without forking out the money for the ticket price. And your employer might also pay for running costs such as insurance, maintenance and business mileage.
That said, you’ll have to pay for the privilege come tax time. And, depending on which car you have, it could be a lot more.
A diesel company car will put the biggest dent in your wallet. They have the highest benefit-in-kind rates. And, unless you have the latest Euro 6 D emission standard, you’ll probably get hit by the 4 percent diesel surcharge.
Hybrid and electric cars are currently taxed at the same rates as petrol cars. Since they tend to be costlier to buy, a petrol company car will probably be the most tax efficient in 2019-20. That said, in 2020-21, benefit-in-kind rates for hybrids and electrics will drop dramatically. So, in the long-term, an electric car will be the cheapest company car for tax.
Do you need to tell HMRC if you get a company car?
Yes. You need to tell HMRC if you start using a company car. You’ll also need to tell HMRC if you change your company car or stop using one. You can do this online.
To let HMRC know you have a company car (or to tell them you’ve changed it or stopped using one), you’ll need:
- The car’s purchase price, including VAT and accessories
- Information about how much CO2 it produces
- If the vehicle has a diesel engine, you’ll need to find out whether it’s RED2-certified or meets the Euro 6D standard
What are the best company cars for tax purposes in the UK?
Looking to change your company car in 2019?
Here are the five most tax-efficient company cars you can buy this year:
- Jaguar I-Pace — Starting at £64,495, the I-Pace is far from being the cheapest electric vehicle around. But as a company car it’s extremely tax-efficient. Plus, it was voted World Car of the Year at the 2019 World Car Awards. Assuming your highest rate of income tax is 20 percent, it’ll set you back £2,398 in 2019-20. But in 2020-21, that’ll go down to a staggeringly low £298. Not bad for an SUV!
- Tesla Model S — The Tesla Model S starts at £71,700, but it’s also a stunning executive car. In 2019-20, it’ll add £2,293 to your tax bill. But in 2020-21, it’ll cost you a mere £285.
- Audi e-tron — Starting at £36,455, the Audi will add £1,165 to your tax bill in 2019-20. This will go down to £144 in 2020-21.
- Kia Soul EV — Asked your employer for the Jag or the Tesla and got nowhere? At £30,495, the Kia Soul EV is way more affordable. It’ll add £974 to your tax bill in 2019-20 and just £120 in 2020-21.
- Dacia Sandero — Boss won’t fork out the money for an electric or hybrid? With prices starting at £6,995 and 120 grams of CO2 per kilometre, the Sandero would add £379 to your tax bill in 2019-20. That said, because it’s petrol, its benefit-in-kind rate will probably go up in 2020-21. Which means it’s not tax-efficient in the long term
Don’t like any of these cars? Is there another one that caught your fancy? Use this company car tax calculator to find out how tax-efficient it is.
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