In the UK, if you use a company car for personal use, you may be required to pay tax on the benefit of having access to the car and/or the fuel costs. This is known as a Benefit in Kind (BIK).
Business vs. Private Use of a Car
The business use of a vehicle generally refers to the use of a car, van, or other vehicles for work-related purposes. This can include driving to meetings, visiting clients, or conducting other work-related activities.
Here are some examples of business use of a vehicle in the UK:
- Driving to a client's office for a meeting
- Driving to a job site to conduct work
- Driving to a supplier's warehouse to pick up materials
Note that ordinary commuting between home - or any other place which is not a workplace - and a permanent workplace is considered private use. Additionally, any use of the vehicle by a member of the employee’s family or household is considered private use.
What is the Value of The Private Use of a Company Car?
The employer must report the company car and any fuel paid to the employee to HM Revenue and Customs (HMRC). This is done by calculating the BIK value of the car, which includes a percentage of the value of the car plus any fuel payments made to the employee.
HMRC provides a handy calculator for determining the BIK value of the private use of a company car. The main factors to consider in this calculation are:
- The value of the car
- Availability - The number of days in the year that the car was made available to the employee.
- BIK rate - the percentage used to determine the taxable value from the value of the car. This rate is based on the CO2 emissions of the car and the type of fuel it uses. For cars first registered in the UK from 1 March 2001, the approved CO2 emissions figure is shown on the vehicle registration certificate (V5C). You can then find the corresponding BIK rate for your car on the gov.uk website.
Here is a simplified formula to calculate the BIK:
BIK = value of car x BIK rate x availability
The BIK rate is based on the CO2 emissions of the car and the type of fuel it uses. For example, in 2022/23, the BIK rate for a petrol car with CO2 emissions of 50 g/km is 14%, while the rate for a diesel car with CO2 emissions of 75 g/km is 24%.
Suppose you have a company car with a value of £20,000 from 1 July 2022. The car is a petrol car with CO2 emissions of 91 g/km. The BIK rate for this type of car is 23%.
To calculate the availability:
From 6 April (beginning of the tax year) to 1 July: 86 days.
Availability in the tax year 2022/2023 would be: (365 - 86) / 365 = 76.4%
To calculate the BIK:
BIK = £20,000 x 23% x 76.4% = £3514
The Benefit in Kind for the company car is therefore £3514. This amount is added to the gross income of the employee. The actual deduction from the employee's net salary depends on the employee's income tax rate - the basic rate of 20%, the higher rate of 40%, or the additional rate of 45%.
Note that the actual number of private miles the employee makes with the company car does not affect the Benefit in Kind. The BIK rate is a fixed percentage that depends only on the vehicle's CO2 emissions, and not on the actual private use of the car. There are, however, a few exceptions, and they are listed in the section "Tax Exemptions" below.
Tax on Company-Provided Fuel
If the company provides a fuel card to the employee or otherwise pays for fuel, then the cost of fuel for private miles will also be taxed by HMRC. The tax liability for this fuel benefit is based on a fixed multiplier set by HMRC. For the tax year 2022/23, it's £25,300. The calculation uses the following formula:
Fuel benefit = BIK rate x fuel benefit multiplier
For our vehicle from the example above, the fuel benefit will be:
Fuel Benefit = 23% x £25,300 = £5819
The fuel benefit is added to the gross income of the employee and is taxed based on the tax band matching the employee's gross salary.
The following cases are exempted from reporting or paying taxes by the employer:
- Privately owned cars - you do not have to pay anything for cars that employees own privately.
- Cars available for business journeys only - To be exempt, you must tell your employee not to use the vehicle for private journeys and check that they do not. A good way to do this is by tracking mileage.
- You do not have to pay or report on fuel, including for private journeys if the employee buys the fuel for their own use, or if you buy it and the employee pays back the private fuel cost during the tax year.
- For other cases, check gov.uk.