Fleet tax fundamentals
One of the biggest factors to consider when choosing your company vehicles is the amount of tax you’ll need to pay on them. The legislation surrounding vehicle taxation can be a little bewildering, but in general, the more eco-friendly your vehicles are, the less you’ll be taxed. Here’s a quick rundown of tax basics for fleet vehicles.
Company car tax
The amount of company car tax you pay is determined by the P11D value of the vehicle as set by HMRC. The P11D value is the taxable value of the vehicle which is different to the vehicle’s cost. This taxable value depends on the vehicle’s list price (including VAT), any delivery charges associated with its purchase, and any optional extras such as sat nav. The total P11D value does not incorporate the vehicle’s first registration fee or annual road tax.
All employees that are given a company car will have to pay a benefit-in-kind (BIK) taxation if they use the vehicle for personal reasons, including commuting to and from work. BIK is calculated by multiplying the vehicle’s P11D value with the emissions band the vehicle falls under (measured in CO2 g/km). This value is then multiplied by the driver’s income tax rate, giving you the overall BIK tax value. All else being equal, the lower the vehicle’s emissions, the lower the tax.
National Insurance contributions must be made for any company car that is also used privately by your employees. Payments will again depend on the vehicle’s P11D value and CO2 emissions.
Vehicle Excise Duty (VED)
Sometimes referred to as road tax, VED is an annual tax you pay on owning a vehicle. In July 2015, the chancellor announced the replacement for the current 13-band VED system with a simpler three-band system – zero emission, standard and premium. The new system will assign an additional £310 surcharge on the higher-emission premium cars and a £140 rate for standard cars.