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. At the end of 2020, company-owned cars accounted for 8.2% 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 2023 – rates up to and including this year are available here). CO2 emissions figures for the purposes of company car tax are now based on the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) for all new cars registered from 6 April 2020; emissions figures for cars registered on or after 1 October 1999 but before 6 April 2020 continue to be measured under the New European Driving Cycle (NEDC) procedure. The latter rates are typically one percentage point higher than those for for newer vehicles. The Vehicle Certification Agency publishes an online guide to fuel consumption and emissions data for new and used cars.
The taxable value of cars with CO2 emissions between 1 and 50g/km now varies depending on their ‘zero emission mileage’ – the maximum distance in miles that can be driven in electric mode without recharging the battery. The differing rates are listed in the table below.
For cars with CO2 emissions of 51g/km or more, the level of tax ranges from 15% up to a maximum of 37% of the car’s list price at 160g/km. There is a 4% supplement on the appropriate percentage for diesel cars (not diesel plug-in hybrids) 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 tables below outline the currently applicable rates (effective 1 March 2024).
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 9 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.