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Company Car Tax Explained

Learn More about Vehicle Finance at Gates Ford

When owning business vehicles for company use, you may find yourself having to make decisions about company car tax. There are two purposes of company car tax: firstly to acknowledge the benefit given to your company through vehicle use, and secondly to encourage individual consideration of more environmentally friendly vehicles – which can also be more cost-effective for your business.

The amount that a business will pay for company car tax relates directly to the vehicle's CO2 emissions, due to 20% of all emissions originating from overall motor vehicle use. Therefore, a reduction in tax for an increase in environmentally-aware drivers has been put forward by the government.

When a business car is used for private use - such as the daily work commute - it is then eligible for a 'benefit in kind' taxable payment, as decided by Revenue and Customs. Using tax terminology, 'benefit in kind' payments are titled as a 'P11D value'.

Company Car Tax is paid through a percentage of your vehicle's P11D value. This value is a combination amount calculated from the new price of your vehicle, its VAT, the delivery, the cost of its number plates, and potential financial extras you may incur. The amount your business is expected to pay is then based on a percentage of this total amount, decided upon by the fuel type and CO2 emissions of your chosen vehicle. This information can be found on Ford's website, on your car's vehicle registration certificate, or through an official guide available from the Vehicle Certification Agency. Following the calculation of the tax amount, this will then be deducted monthly from your salary, at either 20 percent or 40 percent.

Generally, vehicles that use diesel produce less CO2 emissions, and thus are applicable for lower levels of Company Car Tax. However, it is possible that other elements of the vehicle purchase may negatively affect this benefit - diesel engine vehicles can be more expensive from the outset, pushing the P11D price higher. Diesel may also be more expensive from the pump, and incur other costs due to concerns about the cleanliness of diesel fuel fumes in the atmosphere.

Hybrid petrol/electric vehicles are eligible for a three percent discount on the tax, and electric-only cars are given a six percent discount. It is also possible that tax may be placed upon you as an employee if your business makes use of 'free' private motoring fuel through a company fuel card.