How is company car tax calculated?

Company car tax is a complicated thing. How much you pay depends on all sorts of factors, including the value of the car, its emissions, your tax rate, the cost of any options fitted to the car, and the date the car was registered. It gets more fiddly if you run a plug-in hybrid, as the vehicle's all-electric range also influences how much you pay.

But in essence, it boils down to this: the more expensive the car, and the higher its CO2 emissions, the more you pay. The lower the price, and the lower its CO2 emissions, the smaller the tax bill.

Calculating company car tax

To work out what your tax bill will be, you need to know a few facts. To start with, you'll need the car's P11d value. Named after the tax form the value is required for, the P11d value is the list price including VAT, delivery charges, and the cost of options, but excluding the first registration fee and the first year's car tax (Vehicle Excise Duty) payment.

Next, you'll need to know the car's CO2 emissions in g/km. This may vary depending on the car's equipment levels. For example, specifying larger alloy wheels could be enough to push a car into a higher tax band.

You'll also need to know the rate at which you pay income tax, as the taxable value of the company car is treated like part of your salary. At the time of writing, an income of £12,501-£50,000 is taxed at the basic rate of 20%. A salary of £50,001-£150,000 is taxed at 40%, while income of £150,001 and over is taxed at 45%.

Company car tax bands

Tax bands for company cars vary depending on whether a car was registered before or from 6 April 2021. That's because official emissions figures for cars registered from 6 April 2020 onwards are based on the tougher and more accurate WLTP standard, so an identical car will have two different CO2 figures depending on when it was registered.

The full list of tax bands is below:

Company car tax bands from 6 April 2020 

Cars registered before 6 April 2020

Diesel cars which don't meet the RDE2 standard (an on-the-road assessment to guard against rules swerving in the WLTP lab-based tests) are subject to a 4% surcharge. However, since the beginning of January all new cars have had to meet this standard, so it will only apply to older vehicles.

Working out a tax bill

Let's work through an example.

At the start of the 2021/22 tax year, let's say your employer is going to hand you the keys to a car with a P11d value of £30,000, and CO2 emissions of 150g/km. You're in the 40% income tax bracket.

The car is in the 34% tax band, so the taxable benefit is £10,200 (34% of £30,000). You pay tax at 40%, so your annual benefit-in-kind (BIK) tax bill is £4080 (40% of £10,200). Each month, that means £340 will be taken from your salary as tax for running the company car (£4080 divided by 12).

To understate company car tax in more detail, read our company car tax guide.

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Quickly calculate your BIK bill with our company car tax calculator