Car Taxation

Company Car Taxation

One of the most critical elements when choosing a company car is the personal taxation implication of your chosen vehicle. Since April 2002 company car tax has been calculated on the basic elements of P11D price, personal taxation band and CO2 emissions of the vehicle, rather than business mileage. In this section you will find out exactly how to calculate the amount of tax you will pay under the CO2-based method of calculation.

If you are looking for an alternative to the company car scheme, Morgan Highfield & Land Ltd will help you find the right solution. Here are some of the most popular questions asked by our customers:

How is company car tax calculated?

In April 2002 a graduated system of tax was introduced that bases company car tax rates on CO2 emissions. A vehicle's CO2 emission level determines the percentage of the on-the-road cost that can be taxed. This means that vehicles with lower CO2 emissions will incur a lower tax liability.

The previous mileage band structure determining taxation levels has been replaced and company car tax benefit is no longer influenced by the number of business miles for which a company car is used. This means that low business mileage users will pay the same tax as high business mileage users.

How are C02 levels measured?

CO2 emission levels are measured in terms of the weight of CO2 produced for every kilometre that the vehicle travels (g/km).

All new vehicles registered after March 2001 will include their official CO2 rating on their registration document (V5).

What is the P11D value of my car?

The P11D value of a car will generally be the manufacturer's list price for the car (and any options fitted) including VAT, number plates and delivery charges, excluding any options which cost less than £100 and which were fitted after the car was first made available to you.

Will there be any business discounts under the new legislation?

Business mileage discounts were abolished altogether under the new legislation.

The previous mileage band structure determining taxation levels has been replaced and company car tax benefit is no longer influenced by the number of business miles for which a company car is used.

This means that low business mileage users will pay the same tax as high business mileage users.

Is there an example of how to work out the taxation implications for my new car?

The CO2 tax rate is multiplied by the P11D value of the car to derive the annual taxable benefit value. The rate of income tax paid by the driver is applied to this amount to give the annual cost in tax.

Example 1)

The Mercedes-Benz C180K Sport Auto saloon has CO2 emissions of 185g/km, which incurs a taxable rate of 24% in 2007/8 (see CO2 tax bandings). Note that if over the next three years the CO2 emissions within each tax percentage band fall, annual taxation costs may increase.

The annual taxable benefit of a Mercedes-Benz C180K Sport Auto saloon would be 24% of its P11D value of £26888. This works out at £6453.12 and is the amount against which the driver would pay tax.

A driver on the lower level of income tax would pay 23% of this cost: £6453.12 x 23% = £1484.21 (an equivalent of £123.68 per month).

A driver on the upper level of income tax would pay 40% of this cost: £6453.12 x 40% = £2581.25 (an equivalent of £215.10 per month).

Example 2)

The Jaguar XF-Type 2.7 D V6 Luxury Auto saloon has CO2 emissions of 199g/km, which incurs a tax rate of 29% in 2007/8 including the additional 3% supplement (see CO2 tax bandings). Note that if over the next three years the CO2 emissions within each tax percentage band fall, annual taxation costs may increase.

The annual taxable benefit of a Jaguar XF-Type 2.7 D V6 Luxury Auto saloon would be 29% of its P11D value of £33885. This works out at £9826.65 and is the amount against which the driver would pay tax.

A driver on the lower level of income tax would pay 23% of this cost: £9826.65 x 23% = £2260.12 (an equivalent of £188.34 per month).

A driver on the upper level of income tax would pay 40% of this cost: £9826.65 x 40% = £3930.66 (an equivalent of £327.55 per month).

How can I pay a lower rate of Company Car Tax?

Because the level of tax you pay depends upon the amount of emissions your car produces, look for a vehicle with a low C02 rating. Diesel vehicles have significantly lower CO2 outputs than their petrol rivals, so although driving a diesel can make a big difference, choosing a smaller petrol-engined car may save you even more. Cars with automatic gearboxes often emit more CO2 emissions than those with manual transmissions, so choosing to shift the gears yourself can also make a worthwhile difference.

What is a Diesel Euro 4 compliant engine & what can it do for me?

A Euro 4 compliant engine meets the latest stringent European emissions test regulations, offering better performance, greater running smoothness and greatly reduced exhaust gas pollutants. Unfortunately Diesel Euro 4 compliant vehicles will no longer have the diesel supplement of 3% waived: all diesel cars will carry an additional 3% supplement to the % amount taxed.

CO2 emissions In grams per kilometre			Percentage of car's
2005/06	2006/07	2007/08	P11d taxed
140	140	140	15*
145	145	145	16*
150	150	150	17*
155	155	155	18*
160	160	160	19*
165	165	165	20*
170	170	170	21*
175	175	175	22*
180	180	180	23*
185	185	185	24*
190	190	190	25*
195	195	195	26*
200	200	200	27*
205	205	205	28*
210	210	210	29*
215	215	215	30*
220	220	220	31*
225	225	225	32*
230	230	230	33*
235	235	235	34*
240	240	240	35**

Diesel supplements:
*From 01/01/06 all diesel cars with carry an additional 3% supplement
** Maximum charge applicable