General and background information 

Company cars are a major benefit-in-kind and employers have to wade through a raft of benefits legislation before their taxable values can be established. The cash equivalent calculation can be stripped down into the following components:– 


([Price of car for tax purposes] [the appropriate percentage} [availability])

LESS

[Private Use Contributions made by the employee] 



Price of car for tax purposes

LIST PRICE - You start with the list price of the car at the date of registration of the vehicle i.e. the manufacturers recommended price inclusive all taxes & delivery charges, not the price actually paid. 


NOTES

1. There is no longer an upper cap of £80,000. 

2. If the car is over 15 years old and has appreciated in value to more than the original list price, it is deemed to be a classic car and you should use the current market value.


PLUS - ACCESSORIES - The cost of any optional accessories added when the car is first acquired. (Do not include any equipment required by disabled employees to use the car.)


PLUS – REPLACEMENT ACCESSORIES costing at least £100


LESS – CAPITAL CONTRIBUTIONS made by the employee (up to £5,000) - please refer to OpRA legislation for further information



The appropriate percentage 

The appropriate percentage is primarily dependent on the carbon dioxide emissions figure of the company car. Since 1 March 2001 every UK registered vehicle has had the CO2 emissions figure included on the V5 Vehicle Registration Document. The CO2 figure is then looked up against the following table to arrive at the appropriate percentage:-

HMRC Source


HMRC Source 2




Adjustments are then made to this appropriate percentage based on the fuel type of the vehicle 


Type of fuel

P11D Code

Adjustment

Diesel cars
D
An additional 4% supplement is added to the appropriate percentage - up to a maximum in the table above (Supplement was 3% until 2016/17)
All other
A
No further adjustment is required
Diesel cars meeting Euro standard 6d (RDE2 Diesel)
F
No further adjustment is required


The appropriate percentage for cars registered before 1 January 1998 and cars registered on or after that date with no approved CO2 emissions figure is based on the car’s engine size.

Engine sizeRegistered before 1 January 1998Registered after 1997 with no approved CO2 figure
0 to 1400cc20%20%
1401cc to 2000cc31%31%
Over 2000cc37%37%
Rotary engine cars37%37%

A small number of cars will not have an approved CO2 emissions figure. These will probably be rare or one-off models of cars, or cars imported from outside the EU. Supplements and reductions for the type of fuel also apply to these cars if they were first registered after 1998.


This covers the common rules on deciding the prices used for tax purposes, on how to find the approved CO2 emissions figure and how to decide the appropriate percentage. It also covers the special rules for disabled drivers.


Read chapters 11,12,15 and appendix 1 of the 480 expenses and benefits guide for further information.


Alternative Fuels

Full details, including the separate rules for calculating the benefit of cars which run on alternative fuels and classic cars are explained in chapter 12 of the 480 expenses and benefits guide.



Availability

If the car was unavailable for part of the year the car benefit charge for that car is reduced proportionately. Any payments by the director or employee which are required for private use and have been paid in 2018 to 2019 are then deducted.


Discounts are allowed for periods of unavailability of the vehicle. A car is treated as being unavailable on any day if the day falls;

A. Before the first day on which the car is available to the employee

B. After the last day on which the car is available to the employee

C. Within a period of 30 or more consecutive days throughout which the car is not available to the employee.


Overlapping dates for periods of car availability are not correct for a straightforward replacement car. In actual fact, when an employee changes their company car, the exchange of cars usually occurs on the same day. However for tax purposes there must be a day’s difference i.e. the replaced car should be unassigned on the day before the replacement car arrives. 


Private use contributions made by the employee

Any private use contributions made by the employee (out of their net pay) specifically towards the private use of the vehicle will reduce the taxable value. 


Fuel Benefit

If the employee pays for the full cost of all fuel for private journeys (usually including home to work) there will be no car fuel benefit. In all other cases the full tax charge will be due.

Car fuel benefit is calculated by applying the same appropriate percentage charge associated with the company car to the car fuel multiplier in force for the Tax year:

Tax Year

Multiplier

2019-20£24,100
2018-19

£23,400

2017-18£22,600
2016-17 £22,200 
2015-16£22,100

2014-15

£21,700

2013-14

£21,100


EXAMPLE
For the 2017/2018 Tax Year a Petrol car with a CO2 rating of 115 has an appropriate percentage charge of 22% 

Therefore, if private fuel benefit was available for all the 2017-18 Tax year then a fuel benefit charge of £3842.00 would be made (£22,600 x 17%)



This is an all or nothing charge. If the employee travels even one private mile that the employer pays for, the full fuel benefit applies. However, HMRC allow the driver to give up their fuel card at any point without having to change their car and in these circumstances the fuel benefit can be prorated. However if the driver later wishes to reinstate their free fuel provisioning, the fuel benefit will have to apply for the whole period of availability of the vehicle, thus negating the previous period of unavailability.


A company car driver wishing to avoid the car fuel benefit charge can repay their employer the cost of their private mileage. Please refer to the HMRC’s table for advisory fuel rates (https://www.gov.uk/government/publications/advisory-fuel-rates) for an appropriate repayment value.


P9D Form: None - (Obsolete after 2015/16 Tax year)

There is no relevant section for a company car record entered in the P11D Organiser system. Car and car fuel benefit information will not appear on a P9D facsimile, although it will be detailed on the employee benefit statement. 



HMRC Guidance on Company Cars

Cars and car fuel

Car benefit charge


Give details of cars made available for private use and the total car benefit charge.

The list price of a car will usually be the UK list price of the car on the day before the date of first registration, including:

  • VAT
  • car tax (where appropriate)
  • delivery charges
  • number plates

If the car had no list price when it was first registered, use the notional price. This is the price that might reasonably be expected to be the car’s list price if its manufacturer, importer or distributor had published a list price for an equivalent car for single retail sale in the UK.


Accessories must be added at their list price including VAT, fitting and delivery charges, including any:

  • optional accessories with the car when it was first made available to the director or employee, whether or not they were available at any time in this tax year

  • accessories added to the car after it was first made available to the employee, as long as they were added after 31 July 1993 and had a price of £100 or more


Capital contributions (payments made by the director or employee towards the cost of the car and accessories) are deducted from the price of the car and accessories (maximum deduction £5,000).


This figure is multiplied by the ‘appropriate percentage’ to give the car benefit charge for a full tax year.


The appropriate percentage for cars registered on or after 1 January 1998 depends on the carbon dioxide (CO2) emissions of the car and the type of fuel used.


You must enter the key letter from the table below to indicate the type of fuel or power used in each car.


Key letterFuel or power type description
DDiesel cars (except cars that are certified to the RDE2 standard)
AAll other cars (including diesel cars certified to the RDE2 standard)
FDiesel cars meeting Euro standard 6d  (RDE2 Diesel)

The appropriate percentage for cars registered before 1 January 1998 and cars registered on or after that date with no approved CO2 emissions figure is based on the car’s engine size.

Engine sizeRegistered before 1 January 1998Registered after 1997 with no approved CO2 figure
0 to 1400cc20%20%
1401cc to 2000cc31%31%
Over 2000cc37%37%
Rotary engine cars37%37%


A small number of cars will not have an approved CO2 emissions figure. These will probably be rare or one-off models of cars, or cars imported from outside the EU. Supplements and reductions for the type of fuel also apply to these cars if they were first registered after 1998.


If the car was unavailable for part of the year the car benefit charge for that car is reduced proportionately. Any payments by the director or employee which are required for private use and have been paid in 2018 to 2019 are then deducted.


Full details, including the separate rules for calculating the benefit of cars which run on alternative fuels and classic cars are explained in chapter 12 of the 480 expenses and benefits guide.


This covers the common rules on deciding the prices used for tax purposes, on how to find the approved CO2 emissions figure and how to decide the appropriate percentage. It also covers the special rules for disabled drivers.


Read chapters 11,12,15 and appendix 1 of the 480 expenses and benefits guide for further information.


Car fuel benefit charge

No benefit charge will arise if:

  • fuel was provided solely for business travel

  • the director or employee was required to make good the whole of the cost of the fuel used for private motoring (including travel between home and work) and actually did so

  • a mileage allowance was paid covering no more than the cost of fuel used on business travel - if an allowance was paid which covered fuel costs for private travel, for example between home and work, a car fuel benefit charge will arise


If the provision of free fuel is withdrawn, the benefit charge is reduced in proportion to the number of days the car is available after the date of withdrawal.


There is no reduction if free fuel is reinstated later in the tax year.


Enter the total car fuel benefit charge for all cars available. Remember that the type of fuel or power used must be entered whether or not a car fuel benefit charge applies.


Read chapter 13 of the 480 expenses and benefits guide for further information.


HMRC Averaging for Motor Traders


HMRC can agree to measures on a case by case basis solely for the purpose of simplifying the calculation of the amount of the car benefit charge (these are not intended to result in a lower tax charge for the employees involved). Therefore in appropriate cases an averaging approach can be applied to the calculation of the car benefit charge. In effect, a single notional car is substituted for the multitude of actual cars available to these particular employees.


The averaging procedure will mainly affect:

  • Employees in the retail motor trade
  • Employees in the motor leasing and hiring trades
  • Other employees in the motor trade who have very frequent changes of cars


Further information on this can found in a separate article here.



HMRC - Optional remuneration arrangements: cars made available for private use: examples


Example 1

An employee has a car made available to them in the tax year 2017 to 2018 under the terms of an optional remuneration arrangement under which they give up £300 salary per month (£3,600 per annum).

The employee also makes a capital contribution of £1,500 for a higher specification vehicle.

The car has a list price of £20,000 and an appropriate percentage of 17% (based on CO2 emissions and adjusted where applicable e.g. diesel).

The cash equivalent value of the vehicle would normally be £3,145 (£20,000 minus capital contribution £1,500 = £18,500 × 17%).

The modified cash equivalent will, however, be £3,400 (£20,000 × 17%) as no account is taken of the capital contribution.

The modified cash equivalent is then compared with the amount foregone.

The amount foregone (£3,600) is greater than the modified cash equivalent (£3,400), so £3,600 is used to determine the relevant amount.

The relevant amount to treat as earnings is £3,600 minus £255 (capital contribution of £1,500 × 17%) = £3,345.

For tax year 2017 to 2018, and 2018 to 2019, where the car is available for less than the full tax year, you should still allow a deduction for the full amount of the capital contribution multiplied by the appropriate percentage.

For tax years 2019 to 2020 onwards, the amount of the capital contribution will be reduced by applying the availability factor (see example 1A).


Example 1A

An employee has a car made available to them in the tax year 2019 to 2020 under the terms of an optional remuneration arrangement under which they give up £300 per month.

The car is first made available on 6 October 2019 and as in example 1 above, the employee also makes a capital contribution of £1,500 for a higher specification vehicle.

The car has a list price of £20,000 and an appropriate percentage of 17%.

The modified cash equivalent of the car will be £1,700 (£20,000 × 17%) = £3,400 less deduction for unavailability.

The availability factor here is 0.5 ((366 − 183) ÷ 366).

£3,400 × 0.5 = £1,700.

The modified cash equivalent is then compared to the amount foregone £1,800 (£300 × 6 months). The amount foregone is greater than the modified cash equivalent (£1,700) and so £1,800 is used to determine the relevant amount.

The relevant amount to treat as earnings is £1,800 minus £128 (capital contribution of £1,500 × 17% × 0.5 availability factor) = £1,672.


Example 2

An employee has the option of a cash allowance of £5,000 which she gives up for a car, in tax year 2019 to 2020, with a modified cash equivalent of £3,000 and an appropriate percentage 17%.

The employee wanted a higher specified model with leather seats costing a further £500. So, she made a payment of £500 to her employer out of her taxed pay.

The amount foregone is £5,000 which is compared with the modified cash equivalent of £3,000.

The relevant amount is £5,000. The payment of £500 is treated as a capital contribution. The relevant amount to treat as earnings is reduced by £85 (£500 × 17%).




VAT on fuel for private use in cars


For information and guidance on businesses reclaiming input VAT on fuel, please refer to the guide here




Additional HMRC Documentation and external help 

Click the links below to go directly to the HMRC website to download or view the PDF or help files listed below.

HMRC Helpsheet HS203

HMRC Working sheet WS2

HMRC P11D Guide

HMRC Booklet 480

HMRC General guidance for completing forms P11D and P11D(b)