If you’re using a company car for private travel, it’s crucial to understand how it affects your taxes. The vehicle is classified as a benefit in kind (BiK), meaning that the value of its private use is taxed. The tax rate is determined by the car’s list price and its CO2 emissions, providing a clear incentive for choosing low-emission vehicles. In this blog post, we will discuss how to check or update company car tax details, the implications of BiK, and how low-emission vehicles can offer tax breaks.

What is Benefit in Kind (BiK)?

Benefit in kind refers to any non-cash benefit that an employee receives from their employer, which includes the use of a company car for private purposes. As an employee or director, using a company car for personal trips (including commuting to work) means that you must report this as income for tax purposes. The HMRC considers this benefit taxable, hence applying a BiK tax rate based on two primary criteria: the car’s list price and CO2 emissions.

How is BiK Tax Calculated?

When it comes to calculating the BiK tax, several factors come into play:

  1. Car’s List Price: This includes the recommended retail price of the car, along with any optional extras and VAT. The list price essentially reflects the value of the benefit you are receiving.
  2. CO2 Emissions: This is a significant component, as cars with higher CO2 emissions generally face a higher BiK tax rate. Conversely, low-emission vehicles are given preferential treatment in the taxation framework. For example, electric vehicles or hybrids with lower emission figures will incur reduced tax rates, making them more appealing both environmentally and financially.
  3. Tax Rates: The specific rate will depend on a percentage of the car’s list price based on its CO2 emissions. As CO2 emissions decrease, the percentage falls, leading to significant tax savings for the driver.

Benefits of Using the HMRC Online Tool

The HMRC offers a convenient online tool to check or update company car tax details. Here’s how to efficiently use this service:

  • Check Your Company Car’s Details: The tool allows you to confirm your vehicle’s CO2 emissions and list price, ensuring you remain compliant and updated with the correct tax liabilities.
  • Update Your Information: If there have been any changes regarding your company car since April 6, such as a switch to a new car or an update in its CO2 emissions, you can inform HMRC instantly through this tool.
  • Fuel Benefit Updates: If your employer covers fuel for your private use, you can also update this information via the same service.

To access this tool, you’ll need the following information ready:

  • The car’s list price (including VAT and any added accessories)
  • CO2 emissions figures
  • The zero-emission mileage figure or ‘electric range’ if applicable

When Can’t You Use the HMRC Tool?

While HMRC’s online service is user-friendly, there are specific scenarios in which you cannot use this service:

  • If you are part of a car averaging or car sharing scheme
  • If your employer manages benefits and expenses through the payroll (this is known as ‘payrolling’)
  • For updates related to company commercial vehicles, such as vans

Understanding these exceptions can help you navigate through your options effectively.

Key Takeaways

Navigating the complexities of company car tax as a benefit in kind (BiK) may feel overwhelming, but knowing how the tax system works can alleviate some confusion. Use your benefits wisely by considering low-emission vehicles that offer significant tax advantages. Furthermore, take advantage of HMRC’s online tool to check or update company car tax details as necessary. Remember, the goal is to ensure transparency in how your company car is impacting your taxable income.

In conclusion, being informed about your company car’s tax obligations is essential for financial planning. By staying updated on your vehicle’s list price and CO2 emissions and using the available resources, you can manage your company car benefits more efficiently. Whether you are using a hybrid, electric, or traditional vehicle, being proactive about your tax situation can lead to considerable savings on your yearly tax bill. Working with resources like Simply Accounts Accountant Chester, Accountant St Helens, Accountant Northwich, Accountant Congleton or Accountant Nantwich can help ensure informed business decisions. Get in touch with us today for more help or advice.