What is a company car?
It is a car provided by an employer (including a car under a leasing arrangement) for 'private use' by a director or an employee, or their family or household. ‘Private use’ includes ordinary commuting journeys.
A car made available to you by a third party will also count as a company car if it is provided because of your employment.
Motor cycles, invalid carriages, and vans or other commercial vehicles are not 'company cars'.

Who has to pay tax on a company car?
You have to pay tax on most benefits in kind you receive, including your company car, if you are an employee earning £8,500 a year or more, or are a director. Your earnings for this test include

• your wages or salary
• payments for business expenses, and
• the value of benefits, such as, the company car and private medical insurance.

You do not pay NICs on the benefit of a company car but your employer does.
We have used the term ‘employee’ to cover both directors and employees throughout. The amount on which employees have to pay tax is referred to as the 'car benefit'.
A further, separate, charge is made if you are also provided with fuel for private use. This is referred to as ‘car fuel benefit’.
The tax year runs from 6 April in one year to 5 April in the next.

How do I calculate car benefit?
To calculate your car benefit take the following steps.

Step 1
Calculate the price of your car for tax purposes, then deduct any capital contributions you make towards it.

Step 2
Find the approved CO2 emissions figure for the car, if it has one.

Step 3
The ready reckoner further down shows the qualifying levels for the minimum charge that apply in 2002-03, 2003-04, 2004-05 and 2005-06 and the percentage charges for each CO2 emissions band. Look up the CO2 emissions band for the relevant year to work out the percentage of the car's price to be taxed.

• If the exact CO2 emissions figure does not end in 0 or 5 round it down to the nearest 5g/ km.
• If the emissions figure is below the minimum qualifying level shown for the relevant year use the percentage charge appropriate to the minimum level.
• If the car has no CO2 emissions figure, use the table in Annex C further down to find the percentage charge applicable to the engine size of the car.

Step 4
Add any diesel supplement (see below), or apply any discount for alternatively fuelled vehicles, to the percentage charge, where appropriate (see Annex B).

Step 5
To calculate the basic car benefit charge, multiply the car's price from Step 1 by the appropriate percentage charge from Step 4.

Step 6
If the car has only been available for part of the tax year, reduce the car benefit proportionately.

Step 7
Deduct any payments made by the employee for private use of the car.

Step 1 Price of the car
The 'price' of the car for tax purposes will usually be the total of

• the UK list price of the car published by the manufacturer, importer or distributor on the day before the date of registration
• taxes, VAT and car tax (if the car was registered before 12 November 1992), but not vehicle excise duty (road tax) or the new car registration fee
• delivery charges (including VAT)
• the list price of an accessory fitted before the car was first made available to you (including VAT, delivery and fitting charges)
• the list price of an accessory or set of accessories (eg. alloy wheels) with a price of at least £100 (including VAT, fitting and delivery) fitted after the car was first made available to you. Accessories fitted after the car was made available increase the price for the tax year in which they were fitted and subsequent years.

For these purposes, you can ignore the following types of accessories

• mobile phones
• equipment to enable a disabled person to use the car, and
• accessories provided with the car because they are needed by you to perform your duties, for example, the cost of adding a tow bar where the employee has to tow a trailer to carry the equipment in order to do the job.

There is an upper limit of £80,000 on the price of a car for tax purposes. If the price of a car (after deducting any capital contributions you have made) exceeds this figure, its price for tax purposes will be £80,000.

Example 1
A car registered on 1 August 2000 is supplied to Mr Smith with air conditioning and alloy wheels. Leather upholstery is fitted six months later.

List price* £12,540

plus delivery, number plates* £415

air conditioning* £875

alloy wheels* £305

Price of car for tax purposes at the time made available £14,135

Adjustment for leather upholstery fitted later
including cost of fitting* £1,240

Revised price of car for tax purposes £15,375
*Including VAT

What about contributions I pay towards the cost of the car?
Any ‘capital contributions’ you make, up to a limit of £5,000 towards the cost of the car or accessories reduce the price of the car for tax purposes, pound for pound.
‘Capital contributions’ you make towards the cost of a classic car or accessories can be deducted from the market value, again up to a limit of £5,000.

Example 2
Mr Jones contributes £3,500 to the cost of a company car.

Total price of car when made available £13,500

less Mr Jones contribution £3,500

Price of car for tax purposes £10,000

Steps 2 – 4 The percentage of the car’s price which is taxed (the ‘appropriate percentage’)

What is the approved CO2 emissions figure?
Cars that are registered in the United Kingdom and or European Community countries must be submitted by their manufacturers or importers for a 'type approval' test. The level of CO2 the car emits is one of the factors reviewed in the course of the test.
We record the approved CO2 emissions figure for car benefit purposes on the certificate that summarises the results of the type approval testing procedure. The figure that applies at the date on which the car is first registered is set for the life of the car.

How do I calculate the car benefit charge on a car with an approved CO2 emissions figure?
To calculate the car benefit charge you will need to know the price of the car for tax purposes and the approved CO2 emissions figure for the particular vehicle. A step-by-step guide is outlined.

Diesel cars
There is a 3% supplement on the appropriate percentage for diesel cars first registered on or after 1 January 1998, up to the 35% maximum charge. The supplement is waived for cars that meet a European Community emissions standard for cleaner cars, called Euro IV (see Annex A).

Annex A
Car benefit charges for cars with an approved CO2 emissions figure

Diesel Supplements (note that these only apply to cars first registered in 1998 or later which run solely on diesel and are not approved to Euro IV emission standards)

* Add 3%
** Add 2% *** Add 1%
**** Maximum charge, so no diesel supplement.

The basic car benefit charge is the car’s list price multiplied by the appropriate percentage for the CO2 emissions band in which the car falls, subject to

• the addition of any diesel supplement, or
• discounts for cars using alternative fuels and technologies

Diesel Supplements (cars registered on or after 1 January 1998 only)

* Add 3% if car runs solely on diesel.
** Maximum charge, so no diesel supplement.

The basic car benefit charge is the car's list price multiplied by the appropriate percentage appropriate to the car's age and engine size (including any diesel supplement).