If an employee or director is provided with a company car, then a taxable benefit will normally arise. In most cases the charge is calculated by applying the appropriate charge percentage to the list price of the car including any accessories, the list price is reduced by any capital contribution made by the employee. Any accessories fitted after the vehicle has been acquired must also be included.

Vehicle CO2 emmissions determine the percentage to be applied and tax payable will depend on the individual's effective tax rate. The company will be liable for Class 1A NIC's on the calculated benefit at a rate of 13.8%. The benefit is reduced on a pro-rata basis where the vehicle is only provided for part of the tax year.

Currently the maximum benefit rate is 37% (35% 2013-14) of the list price as calculated above, there is no ceiling on list price (inclusive of delivery, car tax & VAT). Deisel fueled vehicles attract a surcharge of 3%, the maximum charge is still restricted to 37%. Cars that run purely on electric currently attract no tax charge (from April 2015 these will attract the lowest table rate). Cars first registered before January 1998 (where there are no accurate C02 emmissions figures) are taxed according to engine size.

If the employee/director is also provided with fuel for private use, fuel benefit at the calculated percentage applies based on a set value of £21,700 (£21,100 2013-14). No fuel benefit applies in respect of purely electric cars.

Any contribution that the employee is required to make towards the car is deductable from the car benefit value, no deduction is allowable from the fuel benefit charge regardless of any part contribution required to be made towards private fuel.

Advisory fuel only rates are published by HMRC, these are the acceptable rates for reimbursing employers for fuel in respect of private mileage and for re-imbursing employees for fuel in respect of business mileage. Amended rates can be agreed with HMRC where an employee is required to drive a vehicle with typically lower miles per gallon/litre. 

Advisory fuel-only mileage rates from 1st March 2014

Any tax due is normally collected through the PAYE system, the employee will be issued with an amended tax code. The employer must notify HMRC within 28 days of the PAYE quarter end (05 July, 05 October, 05 January, 05 April) of any change in the provision of a company vehicle. The necessary form is a P46 (Car) which contains appropriate instructions, the CO2 emmission tables & charges are available from HMRC, you will need to add the 3% surcharge outlined above for a diesel vehicle. A P11D will need to be filed at each tax year end in respect of any employee provided with a company vehicle ( or indeed any other form of benefit in kind). Employer Class 1A NIC liability at 13.8% on Benefits in Kind is payable by 22nd July (if paying electronically) following the end of the respective tax year.

For a company car to be an attractive proposition, the increased tax burden to the employee must be less than the cost to the employee of running their own car from net earnings. The tables below give examples of 2014/15 tax charges for a range of vehicles and tax rates.

Company vans provided with no restriction on private use attract a benefit charge of £3,090 £3,000 2013-14), if fuel is also provided for private use then a fuel benefit of £581 arises (£564 2013-14). Travelling between home and work is not classed as private mileage in the case of company vans. The tax charge on the individual will depend on their tax rate i.e. £3,090 x 20% =£618 for a basic rate tax payer. Employer Class 1A NIC is again payable.

Approved rates for reimbursing employees for business mileage incurred in their private car are shown below. Any payments in excess of the approved rates are a Benefit in Kind and should be recorded on a P11D. Emploter Class 1A Nic's are payable for any payments in excess of 45p. A further 5p can be paid in respect of each passenger carried provided the passengers are being carried for business purposes.

Car parking spaces, pool cars (providing private mileage is incidental & the car is not normally taken home) and provision of a company car where the employee earns less than £8,500 (including benefits), not applicable to directors, are not subject to an income tax charge.

Full mileage records must be maintained in respect of pool cars and private mileage in employee vehicles (together with fuel receipts).

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