Cars For Employees
Cars for Employees: Company Car Benefits and Tax Implications
Employer-provided cars, or company cars, are taxed based on their list price, with a percentage applied according to the vehicle’s carbon dioxide (CO2) emissions. The UK government has structured the tax system to incentivize both manufacturers and employees to opt for more environmentally friendly and fuel-efficient vehicles. AHACCOUNTANTS can assist businesses in Nottingham with the rules surrounding employer-provided car benefits.
Taxing Employer-Provided Cars
The tax charge for a company car is based on the car’s list price, adjusted by a percentage that reflects its CO2 emissions. There are incentives for choosing low-emission or hybrid vehicles, which are taxed at lower rates.
Percentage Charges (2024/25 Tax Year)
| CO2 Emissions (g/km) | % of List Price Taxed |
| 0 | 2% |
| 1 – 50 (split by zero-emission miles) | |
| More than 130 miles | 2% |
| 70 – 129 miles | 5% |
| 40 – 69 miles | 8% |
| 30 – 39 miles | 12% |
| Less than 30 miles | 14% |
| 51 – 54 | 15% |
| 55 – 59 | 16% |
| 60 – 64 | 17% |
| 65 – 69 | 18% |
| 70 – 74 | 19% |
| 75 – 79 | 20% |
| 80 – 84 | 21% |
| 85 – 89 | 22% |
| 90 – 94 | 23% |
For every additional 5g/km of CO2, the percentage increases by 1%, up to a maximum of 37%.
Example:
David has a Hyundai Ioniq with a list price of £28,395 and CO2 emissions of 26 g/km. His tax benefit for 2024/25 is calculated as:
- £28,395 x 12% = £3,407.
Diesel Cars
Diesel cars typically emit lower CO2 emissions than petrol cars, but they produce more air pollutants. As a result, a 4% diesel surcharge applies, except for diesel cars meeting the Euro 6d emissions standard, registered after 1 September 2017. The surcharge does not apply to hybrid diesel cars.
Example:
A diesel car with a CO2-based tax charge of 22% will instead be taxed at 26%. The maximum percentage charge for diesel cars is capped at 37%.
Determining CO2 Emissions
The CO2 emissions for a specific vehicle can be found on the Vehicle Registration Document (V5) or the Vehicle Certification Agency’s free guide on fuel consumption and emissions.
List Price
The list price includes:
- The price when the car was first registered, including VAT, delivery, and accessories.
- Employee capital contributions of up to £5,000 can reduce the list price for tax purposes.
Employer’s Class 1A National Insurance Contributions
Employers must pay Class 1A NICs (13.8% for 2024/25) on the taxable car benefit.
Private Fuel
When employees are provided with fuel for private use, an additional fuel benefit tax applies. The fuel benefit is calculated using the same percentage applied to the car benefit, multiplied by a set figure (£27,800 for 2024/25). This benefit can be costly and inefficient for employees with low private mileage. It can be proportionally reduced if private fuel is not provided for the entire tax year.
Business Fuel
No tax charge applies if the employer reimburses only the fuel used for business journeys. HMRC provides advisory fuel-only mileage rates for employer-provided cars, which are updated quarterly.
Employee Use of Own Car
Employees using their own cars for business travel can receive tax-free mileage allowances:
- Up to 10,000 miles: 45p per mile.
- Over 10,000 miles: 25p per mile.
Employers can reimburse employees up to these statutory rates without incurring tax or NIC charges. If employers pay less than the statutory amount, employees can claim tax relief on the difference.
For detailed guidance on company car benefits, mileage allowances, and the associated tax implications, AHACCOUNTANTS in Nottingham is here to assist your business with expert advice.