Katherine Heffernan | 18 Sep 2019

Company car tax and mileage allowances

Company cars remain a popular employee benefit: research we conducted for the Benefits Handbook found that around two-thirds of employers offer a company car or car allowance, although most schemes only benefit managers or those needing a vehicle to undertake their duties. Car allowances and company cars alike are typically more generous when offered as ‘status’ perks than for job-need users, with managers’ status cars typically worth £32,585 according to our findings. In 2018, company-owned cars accounted for 8.8% of all registered vehicles.

 Tax on company cars

While company cars are a valued benefit, employees pay tax on them as a benefit in kind. Since 2002, the taxable value of company cars has been calculated as a percentage of the vehicle’s list price depending on fuel type and its carbon dioxide emissions. The latter rate has increased markedly in recent years, with any car with CO2 emissions of 165g/km or more now attracting a taxable value of 37%. As such, environmental considerations are an increasingly important factor for employers when deciding on their company car fleet.

The table below outlines the currently applicable rates (showing figures for 2019/20 – rates up to and including this year are available here). The Vehicle Certification Agency publishes an online guide to fuel consumption and emissions data for new and used cars. 

The level of tax ranges from 16% up to a maximum of 37% of the car’s list price at 165g/km. There is a 4% supplement on the appropriate percentage for diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) Standard, up to a maximum of 37%. 

HMRC also publishes advisory fuel-only mileage rates for business travel in company cars. The table below outlines the currently applicable rates (effective 1 September 2019).

The guideline rates only apply where employers reimburse employees for business travel in their company cars and require them to repay the cost of fuel used for private use. If the rate per mile for business travel is no higher than the advisory fuel rate for the particular engine size and fuel type, there is no taxable profit and no liability to Class 1A NICs.

Hybrid cars are treated as either petrol or diesel cars for this purpose, while the advisory fuel rate for fully electric cars is 4 pence per mile.

 Mileage allowance payments for employees using their own vehicles

The guideline rates for employees using their own vehicles on business - which even includes bikes - are somewhat higher, to reflect the fact that the employer is also contributing to other standing and running costs.

Further details of the tax arrangements for company cars are available at this page while information about mileage allowances for employees using their own vehicle can be found here.