At Blue Spire, we understand that providing company cars to your employees isn’t just a perk—it’s a strategic decision. That’s why it’s crucial to know how these cars are taxed and the benefits of choosing environmentally friendly vehicles.
Here’s a simple breakdown of the key points about the current tax regime for company cars and how making informed choices can lead to significant savings and sustainability.
Understanding the Taxation of Company Cars
Company cars are taxed based on their list price but are adjusted according to the car’s CO2 emissions. The aim is to incentivise the production and use of cars that are kinder to our environment. Here’s how it works:
- Lower Emissions, Lower Taxes: The government offers reduced percentage rates for cars with lower emissions. For instance, cars that emit 0 g/km of CO2 are taxed at only 2% of their list price, encouraging the shift towards zero-emission vehicles.
- Hybrid Vehicles: For hybrids emitting up to 50 g/km, the tax rate depends on the distance the car can cover under electric power alone, promoting the use of electric over petrol or diesel.
Tax Rates for 2024/25 Based on CO2 Emissions
The below table outlines the percentage of the list price that will be taxed, based on the CO2 emissions of the car:
| CO2 Emissions (g/km) | % of List Price Taxed |
|---|---|
| 0 | 2% |
| 1 – 50 (varies based on electric range) | 2% to 14% |
| 51 – 54 | 15% |
| 55 – 59 | 16% |
| 60 – 64 | 17% |
| 65 – 69 | 18% |
| 70 – 74 | 19% |
| 75 – 79 | 20% |
| 80 – 84 | 21% |
| 85 – 89 | 22% |
| 90 – 94 | 23% |
| For every additional 5g thereafter | Add 1% until a max of 37% |
Filing a P11D
Employers are required to report any Benefits in Kind, such as company cars, to HMRC by submitting a P11D form. This ensures that both the employer and the employee are accurately taxed on these benefits.
Diesel Vehicles
While diesel cars typically emit less CO2, they produce more air pollutants compared to petrol cars. Hence, a 4% supplement is generally added to the list price for taxation purposes, unless the vehicle meets specific emissions standards.
This adjustment aims to balance the environmental impact with fiscal incentives. The diesel supplement does not apply to hybrid cars.
Employees Using Personal Cars for Business
When Employees use their personal vehicles for business journeys, it’s important for both employers and employees to understand the tax-free mileage allowances set by the government.
Employers can reimburse employees for business travel in their own vehicles at the following statutory rates without incurring additional tax or NIC charges:
| Distance | Rate per Mile |
|---|---|
| Up to 10,000 miles | 45p |
| Over 10,000 miles | 25p |
Key Benefits
- Tax Efficiency: Employers can provide these reimbursements without triggering extra tax or NIC liabilities.
- Employee Compensation: Reimbursing at these rates ensures fair compensation for the use of personal vehicles on business, covering wear and tear.
- Flexibility: If the payment is less than the statutory rate, employees can claim tax relief on the difference, offering flexibility based on actual business usage.
Obtaining Emissions Data
Accurate CO2 emissions data can be found on the Vehicle Registration Document (V5) or through the Vehicle Certification Agency’s guide available at www.carfueldata.direct.gov.uk.
Private and Business Fuel
- Private Fuel: If a company car user is supplied with or claims reimbursement for fuel for private journeys, this could lead to a significant tax charge based on a set figure of £27,800 for the tax year 2024/25.
- Business Fuel: No additional charge applies when employees are reimbursed solely for fuel used for business travel.
How Blue Spire Can Help
Navigating the complexities of company car taxation and mileage reimbursements requires careful consideration and expertise.
At Blue Spire, we’re committed to helping you find the most tax-efficient and practical solutions for your business vehicle needs. Contact us today for tailored advice that drives your business forward.
| If you have any questions about any of the above or need advice, please get in touch with our approachable team today. |
