While company cars started off as a way to provide a tax-efficient benefit to employees, HMRC eventually caught on and tightened up regulations.
Nowadays, you’ll pay a company car tax, which is dependent on the benefit in kind (BIK) value of the car. The BIK value is, in turn, largely dependent on the car’s emissions.
Still with me?
With company cars, your BIK value is calculated by multiplying the list price of the car by a percentage based on its CO2 emissions.
(Note: You always use the ‘as new’ price of the car so with car leasing your BIK value does not decrease over the course of your contract.)
Let’s look at a couple examples.
Let’s say you lease a Nissan Qashqai Visia 1.2 DIG-T 115 for your employee. The Qashqai costs around about £19,300 to buy new. Since it emits 129 g of CO2 per km, it has a taxable rate of 26% in 2018/19.
So you take 26% of £19,300 (£5,018) and that is your BIK value. Your employee then pays tax on that as if it were regular income.
A basic rate taxpayer (20%) would pay £1,003.60, a higher rate taxpayer (40%) would pay £2,007.20 and an additional rate taxpayer (45%) would pay £2,258.10.
Next, let’s say you lease a Fiat Doblo 1.4 Pop for your employee. The Doblo costs about £12,995.90 to buy new, which is substantially less than the Qashqai. However, with CO2 emissions of 165 g per km, it attracts a taxable rate of 34%.
As before, you take 34% of £12,995.90 (£4,418.61) and that’s your BIK value.
As you can see, despite being a much cheaper car, you’ll pay almost as much company car with the Doblo as you do with the Qashqai.
The basic rate taxpayer pays £883.72, the higher rate taxpayer pays £1,767.44 and the additional rate taxpayer pays £1,988.37
Where Can I Check The Emissions Chaarges?
Relevant emissions percentages can be found at the HMRC website.