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.


Appropriate Percentages until 5th April 2020


Appropriate Percentages from 6th April 2020.

In the Autumn Budget 2017, the government announced that cars registered from April 2020 will be taxed based on Worldwide harmonised Light vehicles Test Procedure (WLTP) figures. WLTP aims to be more representative of real world driving conditions, compared to the previous test known as the New European Driving Cycle (NEDC). As a result, reported emissions are expected to increase which could impact Vehicle Excise Duty and company car tax.

The Government’s aim to reduce pollution and improve air quality in the UK and encourage people to invest in more environmentally friendly vehicles, has brought about a revision of the Appropriate Percentages used in the Benefit In Kind (BIK) calculations, particularly for Ultra Low Emission Vehicles (ULEVs).

HMRC has confirmed that from April 2020 there will be 11 new bands for ULEVs as well as the inclusion of a separate zero emissions band for wholly electrically powered vehicles.  Company car drivers using zero emission cars will pay no company car tax in 2020-2021 with the tax rate increasing by one percent each tax year before returning to the planned two percent in 2022-2023.


Cars first registered before 6 April 2020
Cars first registered from 6 April 2020


Appropriate Percentage (%)

Appropriate Percentage (%)
CO2
emissions
(g/km)
Electric
range (miles)
2020-21 2021-22 2022-23CO2
emissions
 (g/km)
Electric
range (miles)
2020-21 2021-22 2022-23
0N/A 0120N/A 012
1-50>130 2221-50>130 012
1-5070-129 5551-5070-129 345
1-5040-69 8881-5040-69 678
1-5030-39 1212121-5030-39 101112
1-50<30 1414141-50<30 121314
51-54 
15151551-54 
131415
55-59 
16161655-59 
141516
60-64 
17171760-64 
151617
65-69 
18181865-69 
161718
70-74 
19191970-74 
171819
75-79 
20202075-79 
181920
80-84 
21212180-84 
192021
85-89 
22222285-89 
202122
90-94 
23232390-94 
212223
95-99 
24242495-99 
222324
100-104 
252525100-104 
232425
105-109 
262626105-109 
242526
110-114 
272727110-114 
252627
115-119 
282828115-119 
262728
120-124 
292929120-124 
272829
125-129 
303030125-129 
282930
130-134 
313131130-134 
293031
135-139 
323232135-139 
303132
140-144 
333333140-144 
313233
145-149 
343434145-149 
323334
150-154 
353535150-154 
333435
155-159 
363636155-159 
343536
160 and
 over

373737160-164 
353637





165-169 
363737





170+ 
373737


Adjusting the Appropriate Percentage

Adjustments are made to the 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



Cars with no Approved CO2 emission value

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 booklet 480 - an expenses and benefits guide for further information.

Cars registered on or after 1 January 1998 without an approved CO2 emissions figure 

Using table 3 below, work out the percentage to enter in box K, use: 

• column 1 for all cars in fuel type A 

• use column 2 for all cars in fuel type D 


TABLE 3

Cars registered on or after 1 January 1998 without an approved CO2 emissions figure


Engine size
Percentage 2017/2018
Percentage 2018/2019
Percentage 2019/2020
0 to 1400cc
18 (21)
20 (24)
23 (27)
1401cc to 2000cc
29 (32)
31 (35)
34 (37)
over 2000
37
3737
all rotary engines
37
37
37

Diesel rates (HMRC Fuel Type D) is shown in brackets, where different.


All cars registered before 1 January 1998


TABLE 4

Engine size
Percentage 2017/2018
Percentage 2018/2019
Percentage 2019/2020
0 to 1400cc
18
2023
1401cc to 2000cc
29
3134
over 2000
37
3737
all rotary engines
37
37
37



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 booklet 480 - an expenses and benefits guide for further information.   


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

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 for an appropriate repayment value.


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

2020-21
£24,500
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%)



* Extract from HMRC booklet 480

Calculating the fuel benefit charge for a whole year

The car fuel benefit charge is calculated by multiplying 2 figures:

• a fixed sum of £24,100 for 2019 to 2020

• the ‘appropriate percentage’ used to calculate the car benefit (see paragraph 12.22 onwards) 

There’s never any need to calculate a new appropriate percentage for car fuel benefit. In every case, whether or not the car has an approved CO2 emissions figure, the appropriate percentage used to calculate the car benefit charge is used to calculate the car fuel benefit charge. 

For example a car powered by petrol has CO2 emissions of 160g/km. The appropriate percentage used to calculate the car benefit charge for 2018 to 2019 is 33%. 

The 2018 to 2019 car fuel benefit charge is £23,400 x 33% = £7,722



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 Euro standard 6d  (RDE2 Diesel))
AAll other cars (excdiesel cars certified to the Euro standard 6d (RDE2 Diesel))
FDiesel cars meeting Euro standard 6d  (RDE2 Diesel)



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 booklet 480 - an 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 Working sheet WS2

HMRC P11D Guide

HMRC Booklet 480

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