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If you are an employee and are using a company car for your personal needs, you are paying car tax. The tax is automatically deducted from your wage, but do you know how much it is and how you can reduce the costs? Find answers in this blog post.
Company car tax is a so called ‘Benefit In Kind’ (BIK) as the private use of the car has monetary value and is not included in the annual salary of the employee. In other words, it is a tax payed for a car that was provided by an employer and is also used for employee‘s personal purposes.
If you are using a company car for commuting to and from work, that counts as a personal use of the car, too. Also, if an employer covers the cost of the fuel that is used for personal commuting, that is also taxed.
The tax paid depends on three aspects:
The easiest way to find out how much tax you have to pay is by using HMRC calculator here.
Or if you would like to double-check whether amount is correct, you can also use this formula:
Even though there always were a number of different tax bands that determine the payable amount, this year UK Government introduced even more of them. The whole list can be found here.
However, keep in mind, that these rates are applicable only to cars that were registered on April 1, 2017 or after. If your car was registered before this date, previous rates are applicable.
How to reduce payable tax?
1. The amount that you are supposed to pay for company car tax, can be reduced if:
2. Choose a petrol car
The first thing that you should pay attention to if you want to save money on company car tax is the type of fuel it uses.
Usually, petrol cars are cheaper and have smaller P11D values. Also, they are smaller, more suitable for driving in the city and have a smaller Benefit in Kind value. This means that the payable tax is lower.
Diesel run cars are usually bigger and suitable for long distance drives. They are more expensive and produce more emission and therefore have higher P11D values.
Currently, diesel cars have a 3% surcharge over petrol models with similar emissions.
3. Get rid of extras
Even though it doesn’t sound that important, choosing a car without additional extras like satellite navigation, can have a positive value on P11d value, which means less taxes in general.
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