Company car tax explained

I trade through my own limited company and in April 2017 I purchased a car through my company and am struggling to understand how much tax I will pay on this. The car is petrol with Co2 emissions of 155 and the list price is £35,000. I also put all petrol costs through my company.

 

Company car benefit in kind tax

 

Answer, February 2018

Working out the tax calculations on company cars is actually a very complicated process with many moving parts including corporation tax, VAT, income tax and national insurance, however we are going to limit this answer to purely deal with the personal benefit in kind tax on company cars.

The individual benefit in kind tax to be paid on a company car is dependent upon two factors, the manufacturer’s list price of the vehicle when new and the Co2 emissions of the vehicle.

The taxable benefit is calculated by taking this list price plus any accessories added and multiplying this by the appropriate percentage based upon the Co2 emission.

The emissions percentages are available from HMRC here.

For our example, the car in question has a manufacturer list price of £35,000 with Co2 emissions of 155 grams per km, so this would attract a benefit in kind charge of £10,500 for the 17/18 tax year (being £35,000 x 30% , which is the appropriate percentage based upon that level of emissions per the link above).

This £10,500 would be taxed on the individual in the same way as a salary in that it would attract personal tax at 20% in the basic rate of income tax and 40% and 45% in the higher and additional rate bands respectively and bear in mind any effect of pushing dividends into higher tax brackets (by order, dividends are taxed last).

Where the company also pays for all fuel for the company car there is a further benefit charge.

For the 2017/18 tax year this benefit is fixed at £22,600 which is then multiplied by the same percentage established from the Co2 figure.

In the above example the fuel supplied would create a taxable benefit of £6,780 (being £22,600 x 30%).

So the total taxable benefit in kind for this example is £17,280 (£10,500 + £6,780).

The actual income tax due on this benefit in kind will depend on how much salary, dividends and any other income that the tax payer is receiving.

The limited company will also be required to pay Class 1a national insurance on the total benefit of £17,280 which is charged at 13.8%, totaling £2,385. This needs to be paid to HMRC by the company by the 19th July after the end of the tax year in question.