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When a car is provided by your employer that allows you or a member of your family or household private use, then a tax is charged.

This is often called company car tax, but its proper name is benefit in kind (BIK) tax, and is an area of taxation that covers benefits provided by employers.
Since 2002, company car tax has been based on a vehicle’s published CO2 emissions, effectively discouraging drivers from choosing more polluting company cars.

The car’s CO2 emissions as recorded on the V5 document puts it into a percentage band that is applied to the car’s P11D value (list price, VAT and any delivery charges) to calculate a taxable value of the car.

The taxable value is then added to an employee’s salary and tax is paid according to his or her rate of income tax.

CO2 emissions are rounded down if not already a multiple of five, while diesel cars attract an additional 3% supplement. However, diesel hybrids do not carry the 3% supplement, and continuing efforts by car manufacturers to make diesels cleaner, as well as lobbying by manufacturers will see the end of the 3% diesel supplement on all new diesel company cars in 2016/17.

Since the CO2-based system was introduced, the tax bands have tightened in most subsequent years.

It means someone choosing a car with CO2 emissions of 120g/km would see the percentage rate used for the taxable value of the car increase each year (see table).

Electric cars are currently exempt from BIK tax, but an announcement in the 2012 Budget will see all plug-in vehicles paying BIK tax from 2015/16.

 

Benefit-in-kind CO2 bands by tax year 

 

BIK tax band*                                
 

2014/15           

g/km

2015/16          

g/km

2016/17          

g/km

2017/18          

g/km

2018/19          

g/km

0 0 n/a n/a n/a n/a
5 1-75 0-75 n/a n/a n/a
7 n/a n/a 0-50 n/a n/a
9 n/a 51-75 n/a 0-50 n/a
10 n/a n/a n/a n/a n/a
11 76-94 n/a 51-75 n/a n/a
12 95-99 n/a n/a n/a n/a
13 100-104 76-94 n/a 51-75 0-50
14 105-109 95-99 n/a n/a n/a
15 110-114 100-104 76-94 n/a n/a
16 115-119 105-109 95-99 n/a 51-75
17 120-124 110-114 100-104 76-94 n/a
18 125-129 115-119 105-109 95-99 n/a
19 130-134 120-124 110-114 100-104 76-94
20 135-139 125-129 115-119 105-109 95-99
21 140-144 130-134 120-124 110-114 100-104
22 145-149 135-139 125-129 115-119 105-109
23 150-154 140-144 130-134 120-124 110-114
24 155-159 145-149 135-139 125-129 115-119
25 160-164 150-154 140-144 130-134 120-124
26 165-169 155-159 145-149 135-139 125-129
27 170-174 160-164 150-154 140-144 130-134
28 175-179 165-169 155-159 145-149 135-139
29 180-184 170-174 160-164 150-154 140-144
30 185-189 175-179 165-169 155-159 145-149
31 190-194 180-184 170-174 160-164 150-154
32 195-199 185-189 175-179 165-169 155-159
33 200-204 190-194 180-184 170-174 160-164
34 205-209 195-199 185-189 175-179 165-169
35 210-214 200-204 190-194 180-184 170-174
36 n/a 205-209 195-199 185-189 175-179
37

*Add 3% for diesels up to a maximum of 35% in 2014/15. Add 3% for diesels up to a maximum of 37% in 2015/16.  

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