The value of a company car

Due to the significant impact of cars on the environment, special tax regulations are implemented to manage their ecological footprint. These policies include road tax exemptions for electric vehicles (EVs) and increased business allowances for low CO2 emission cars, aiming to incentivize eco-friendly investments.

When employees use their personal vehicles for work-related tasks, they can claim allowable deductions against their employment income. Reducing their taxable earnings. However, these deductions don’t cover home-to-office commuting unless it’s to a temporary workplace. Instead, a mileage rate is used to cover various expenses such as fuel, maintenance, insurance, and depreciation.

However, if employees are reimbursed for personal car use, their allowable deductions may be reduced or eliminated, particularly if reimbursement exceeds the Approved Mileage Allowance Payments (AMAP) rates. Excess reimbursement results in a benefit-in-kind (BIK) tax charge for the employee.

Moreover, if an employee or their family uses a company car for personal reasons, including commuting, it’s considered a benefit-in-kind, with taxable amounts determined by specific percentages based on CO2 emissions. Electric vehicles attract the lowest percentage (2%), expected to rise to 5% by 2028. While hybrid-electric cars’ percentages range from 2% to 14% depending on electric range. Petrol cars with higher CO2 emissions face higher taxable amounts. With diesel cars incurring an additional 4% penalty to discourage their use.

Using a Company Car for Personal use

When an employee receives a company car, a tax liability may arise if the employee or their family uses it for personal purposes, including basic commuting. This car is deemed a benefit-in-kind, and its taxable value is calculated by applying a specific percentage to the list price. This percentage is determined based on the vehicle’s CO2 emissions.

For the tax year 2024/25, electric vehicles are allocated the lowest percentage – 2% – for benefit calculation. However, this is expected to increase to 5% by 2028. Hybrid-electric cars with CO2 emissions ranging from one to 50 grams per kilometre may have percentages ranging from 2% to 14%, depending on the electric range of the vehicle.

Petrol cars with a base CO2 emission level of 55 grams per kilometre attract a higher taxable value, with a 16% rate applied to the car’s cost. This rate increases by 1% for every complete five-gram increment above the base level. To discourage the use of diesel cars, tax authorities add an additional 4% to the percentage calculated using the car’s diesel CO2 emission rates.