How to Tax Your Company Car: Tax Rules You Should Know

Tom
Tom May 2022 Content Creator 5 min

Table of contents

A company car is a great perk in a new job. It gives you as the employee freedom to use for yourself and your family on weekends and personal trips. 

Of course, there are some conditions to this perk.

A company car is still owned by the company you work for, so attached to it are requirements and taxation issues which will need to be sorted out for you to continue to use the car in your own time. 

In this post on how to tax your company car, we go through the rules on how to tax your company car—sort out your taxes and enjoy the ride. 

How to tax your company car in a nutshell

  • Company car taxation falls under BiK (Benefit in Kind) rules
  • Taxpayers pay 20% of a quarter of the car’s value
  • Tax on fuel is determined by what kind of fuel the car uses
  • Due to a push to eliminate pollutant cars on the road, the UK is enforcing a taxation rule that provides lower tax fees for hybrid and electric company cars
  • Plug-in hybrid cars are taxed lower than self-charging
  • April 6 2022 saw changes to the way car emissions are assessed, now falling under the WLTP instead of the NEDC, which has significant impact on company car taxation

Understanding company car taxation

Determining the tax you pay on the company car will depend on how much you use it in your personal time and what tax bracket you fit into. 

How you tax your company car use falls under the rules of BiK (Benefit in Kind). This is a monetary value companies provide to their employees and takes the form of benefits, notional pay, and fringe benefits. 

Your BiK with the company car will allow you a certain distance of usage and will change depending on the company’s budget. 

So, if you are in the 20% tax bracket due to your salary and the company car allows a 25% BiK rate, you’ll pay 20% of 25% of the car’s value. So if:

Car value = €30,000

25% of €30,000 = €7,500

20% of €7,500 = €1,500

Annual BiK is €1,500

Tax on company-provided fuel

In addition to the general tax on the company car, tax is also applicable to the fuel you are using in the car. 

To determine this you must calculate the ‘fuel benefit charge’. This is provided in addition to the car benefit charge. The point is for your employer to understand whether or not you are using the car for personal use. 

Check with your employer what kind of mileage allowance is provided for the lending of the company car. The allowance of fuel can usually be extended to any immediate family members with a driving licence in the employee’s household. 

The cost of fuel is usually reimbursed via a company credit card and paid on behalf of the employer, and will not be taxed unless the amount of fuel used in the month exceeds the allowance on the fuel benefit charge. 

Read more: How to Submit a Tax Return in Germany

Company car tax for hybrids

What you pay for your company car tax is heavily influenced by the company car’s CO2 emissions. In a bid to populate the roads with 100% electric cars by 2035, the UK government has increased taxes on fuel combustion engines. This has inspired companies to encourage employees to choose electric or hybrid cars when selecting a company car.

The BiK rate changes depending on whether you are using a plug-in hybrid or self-charging hybrid. 

Plug-in hybrid vs self-charging tax rates

With a much longer electric range and significantly lower CO2 emissions, plug-in hybrids offer a lower tax rate. The BiK tax rate for plug-in hybrids is 8% or 12% of the list price, compared to a minimum of 25% for the self-charging hybrid.

Other factors influencing your company car tax

The following factors play a role in calculating your company car tax:

  • The current tax year
  • Vehicle’s approved CO2 emissions (hybrid, fuel combustion, electric)
  • Cash alternative (if the BiK can be given in the form of a cash benefit)
  • P11D value (car list price including VAT and delivery charges)
  • Employee capital contributions (any payments you make on the car and related accessories)
  • Fuel type (diesel, petrol, gas)
  • Registration date

Company car tax changes 2022/2023

From 6 April 2022, changes have been implemented to the BiK which affect the company car tax. These changes are based on the WLTP (World Harmonised Light vehicle Test Procedure).

WLTP vs NEDC

September 2018 saw significant changes to car emissions and fuel economy testing. Intended to give vehicle owners a clearer picture of how much fuel their car is using and how pollutant its CO2 emissions are, the WLTP will deliver information which is much more accurate than previous NEDC testing methods.

Under the changes, two sets of BiK rates are now in place. Cars registered prior to 6 April 2022 will be assessed under the older NEDC rates and ones registered after will be under the WLTP. 

Check your company car’s registration and emissions type to determine the tax rate you will pay, and use a company car tax calculator to determine the rate. 

How can I reduce my tax bill

A fuel efficient, hybrid, or electric car will be taxed the least due to the recent fuel efficiency and low CO2 emissions efforts. You can also reduce the company car tax by considering the size, age, and frequency of use. If you rely on a commute to work with public transportation and avoid using the company car on weekends you will have a much reduced annual tax bill. 

Conclusion

Let’s be honest: Taxes in Germany isn’t the easiest or most fun topic. Recent changes to the fuel emissions tax have affected BiK company car allowances, making the taxation process even more complicated.

To understand how to tax your company car, and thereby benefits from tax deductions, it’s important to keep these things in mind when selecting your company car and when to use it. 

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