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Company car tax 2019: guide for employers

Answering your questions on company car tax. Everything from calculating company car tax to paying it on time.

Company car tax jargon buster
There are a few technical terms included in this article, so here’s a handy guide to what they all mean…
  • <i>Benefit in kind (BiK)</i> – any benefit an employee receives that isn’t included in their salary.
  • <i>Emissions</i> – the amount of carbon dioxide – or CO2 - a car emits from its exhaust.
  • <i>g/km</i> – short for grams per kilometre, this is how the amount of carbon dioxide (CO2) is measured.
  • <i>HMRC</i> – Her Majesty’s Revenue and Customs, government department responsible for collecting tax, amongst other things.
  • <i>List price</i> – the manufacturer’s list price, which includes factory-fitted options and VAT, but excludes ‘on-the-road’ costs, such as delivery charges, the first registration fee, the first year’s road tax, number plates and fuel.
  • <i>P11D</i> – the tax form you (as an employer) will need to fill in and send off every year.
  • <i>P11D value</i> – the value of your company car including its list price, VAT, delivery charges and the value of optional extras, but doesn’t include road tax or first registration fee.
  • <i>Personal tax allowance</i> – the amount of money you can earn without paying tax (currently £11,850).
  • <i>Tax year</i> – a tax year runs from April 6 to April 5. The current tax year starts on April 6 2019 and will end on April 5 2020 – it is therefore called the 2019/2020 tax year.
Eco-friendly company car
What is company car tax?
Company car tax is paid by employees who drive vehicles owned by the business they work for. As an employer, you’ll deduct this tax from their wages as part of the Pay As You Earn (PAYE) scheme, and record it on a P11D form.
Who pays company car tax?
Company car tax is paid through salary sacrifice, which means it comes from the employee’s wages as a Benefit in Kind. It is the employer’s job to deduct this tax from their wages, however.
You’ll have to pay tax on your company car if you meet one of these criteria:
  • You’re an employee driving a car that belongs to the company
  • You’re self-employed and trade as a limited liability company. This is because you’re legally classed as an employee and separate to the business as an LLC.
How is company car tax calculated?
Cars will be taxed at different rates depending on several factors, including:
  • The car’s taxable value, also known as its P11D value. This is the car’s list price, plus VAT and delivery fees, minus the cost of first registration and road tax/vehicle excise duty (VED).
  • How much carbon dioxide (CO2) the car emits, which determines its Benefit in Kind (BiK) rate.
  • Whether the car is petrol, diesel, electric or hybrid.
  • The employee’s income tax bracket.
What are company car tax rates in 2019/2020?
There are currently 21 company car BiK tax bands for 2019/2020, which are based on a car’s emissions. The BiK rates for the 2019/2020 tax year as follows:
2019 2020 company car tax rates petrol and diesel cars
Company car tax calculation example
As an employer, you need to work out the taxable value of the company cars and report this to HM Revenue and Customs (HMRC).
You can calculate the company car tax owed by your employees in three steps, using the BiK rates in our table.
  1. Start with your company car’s P11D value, e.g. £20,000.
  2. Multiply the P11D value by the company car tax rate (from the table above) to get your BiK amount.
  3. Multiply your car’s BiK rate by the employee’s personal tax rate to find the amount of company car tax payable.
Example: with a P11D value of £20,000, company car tax rate of 19% and personal tax rate of 20%. £20,000 x 0.19 (standing for the 19%) = £3,800 (BiK amount) x 0.20 (standing for the 20%) = £760 per year. *Personal tax rates for 2019/20 are available here.
Car fuel benefit
The car fuel benefit is charged to any employee or company director who receives free fuel from their employer for private use.
While the fuel is free, employees will have to pay tax on it as it is classed as a benefit. To find out how much tax your employees owe, you can use the Government’s fuel benefit calculator here.
Company car tax for diesel cars
If your employees are driving diesel cars, then they’ll have to pay a diesel supplement. The diesel supplement is a surcharge that applies to diesel-only cars that:
  • Were registered between 1 January 1998 and 31 August 2017
  • Were registered on or after 1 September 2017 but aren’t RDE2-certified*
The diesel supplement doesn’t apply to hybrids, and you won’t have to pay it if you can prove your car emits less than 0.08g/km of nitrogen oxide.** In the tax year 2019/20 the diesel supplement will be 4%. This is up from 3% in previous years. *RDE2 is short for Real Driving Emissions 2. This is a test that finds out how much nitrogen oxide a car emits. The standard is 0.080g/km. **Nitrogen oxide emissions are established through a standardised lab test called the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). Learn more about WLTP.
Company car tax for electric and hybrid cars
The BiK rates for electric and hybrid cars are calculated a according to how many miles they can drive without producing any CO2 emissions. This is known as their zero-emission range.
The good news is electric cars are always taxed at the lowest rate because they never produce any emissions. They’re also set to become even cheaper to run from 2020 when HMRC cut the BiK rate to just 2%, the lowest company car tax bracket available. The table below shows the company car tax rates for electric and hybrid cars over the next couple of years:
2019 2020 company car tax electric and hybrid cars
Am I exempt from company car tax?
A car can be exempt from company car tax if it meets one of the following criteria:
  • The car and fuel are privately owned by the director or employee.
  • The car is only available for business journeys e.g. travelling to an appointment or temporary work place.
  • The car has been adapted for an employee with a disability. But the car is only exempt if the private use is limited to journeys between home and work, and travel to work-related training.
  • It’s a pool car (shared by employees for business purposes and kept on your premises). You’ll have to pay for a pool car if it’s driven for private use, though. Find out if your car qualifies as a pool car here.
You might not have to report or pay on fuel (including private journeys), if:
  • Employees buy the fuel for their own use.
  • You buy the fuel, but your employees pay you back in full during the tax year.
If you’re classed as an employer as an individual (e.g. a sole trader), you may also be entitled to company car tax exemptions, provided you are not an LLC. You may also be exempt if you’re providing the car to a close relative who works in your business, but not because they work in your business. E.g. you bought your spouse a car as a birthday present, not for or through work. You can learn more about company car tax exemptions on the Gov website.
How do I pay company car tax?
As an employer, you’ll include company car tax and fuel as part of your P11D form. You’ll also have to pay Class 1A National Insurance on every company car. Your P11D form is due on July 6 of each year, following the end of the tax year on April 5.
On July 6, you’ll need to submit your P11D form to HMRC, give a copy of the form to each employee and tell HMRC how much National Insurance you owe on the form. This is a fixed deadline, and you will face fines if you fail to meet it so make sure you’re working well in advance. If your employees can use the company cars for private use, then you’ll also have to file a P46 car tax form for every company vehicle to tell HMRC about it.
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