Taxation of motor cars
Taxation of motor cars is done in two ways. The form p11D value is the value of the car benefit, aka benefit in kind, that you or your employer state on form p11D.
It is any taxable benefit you receive from using a company car for private use. The value of this car tax benefit will be added to your income and taxed. The employer will also have to pay National Insurance on this benefit because car tax benefits are considered to be income. If the benefit was only for part of the year, the tax will be pro rata.
The second is deduction from profit as car tax depreciation.
Both car tax methods need to be considered when purchasing a car for a business. This is the case whether your business, or the business you work for, is registered as a company, a partnership, or if you are a sole trader.
What is the P11D value?
The P11D is the form used by HM Revenue & Customs to identify the car tax benefits and other benefits made available to company employees (which includes Directors) during the tax year. The P11D is filled in after the tax year (i.e. after 5 April) and has to be submitted before 5 July following the end of each tax year. So whoever has to work out the P11D value – the person has three months to do it. The correct computation of the P11D value is important as, needless to say, penalties can arise from inaccuracies.
Who has to pay the tax?
Directors and employees earning more than £8,500. The £8,500 includes both salary plus the benefit. So directors and employees are eligible to pay tax on the benefit derived from private use of their motor car if the combined income is above this number. If the combined income is less than £8,500, then from the point of view of this car benefit (you may have other benefits which need to be stated) a P11D form need not be filled in – the P11D value for car tax benefit would be insufficient.
There are no tax benefits in the following cases i.e. these circumstances mean no tax will be paid:
i. The car is not suitable for private use eg. it's an invalid carriage.
ii. The car is only used for business mileage.
iii. All private use is prohibited by the employer and factually none is made during the financial year.
iv. Pool cars - The car is deemed to form part of a pool, which is when, during a particular year:
a) It is made available to and actually used by more than one employee by reasons of their employment, but it was not used ordinarily by any employee to the exclusion of others and:
b) Any private use by any of them was merely incidental to the business travel.
c) It was not normally kept overnight on or in the vicinity of any residential premises where any such employee was residing - but this would exclude the keeping of the car overnight on premises by the person making it available.
Calculation of the car benefit for P11D value purposes
Since 6 April 2002 the calculation is based on the pollution caused by the relevant car. The starting point is the manufacturer’s list price (MLP). Some extras will have to be added to, or included in, this number to reach the P11D value. Examples include VAT, accessories (of a value exceeding £100 and added after 31 July 1993), delivery charges, and number plates.
The charges are calculated by reference to a percentage of that price, considered according to the level of CO2 emissions measured in grams per kilometre (g/km). The relevant calculation for cars emitting more than 120 g/km then the percentage to be applied, i.e. a petrol car emitting between 121 and 135 g/km would pay tax of 15% of the list price. So if the manufacturer’s list price of the car (plus the extras) was £20,000, then the car tax benefit you have received would be £3,000. This £3,000 is added to your income, and it is the amount you will be taxed on - at your personal rate of taxation - 40%, 23% etc.
Other information relating to calculations
From 2008/09 a 10% band has been introduced when the CO2 emissions of the car is 120 g/km or less. These are identified as qualifying low emission cars and are known as QUALECS for short. The percentages applicable to QUALECSs are as follows:-
All other cars 10%
Electric only 9%
Getting emissions data for the car
How do you find out your vehicle's level of CO2 emissions, and therefore the percentage used in the calculation?
The CO2 emissions classification (definitive) is on the vehicle registration document (V5) if the car was registered after 1 March 2001. For cars first registered between 1 January 1998 and 28 February 2001, you can get the definitive figure by visiting http://www.smmtco2.co.uk/co2search2.asp The numbers are shown by courtesy of the Society of Motor Manufacturers and Traders (SMMT).
There isn’t reliable CO2 emissions data for cars registered before 1 January 1998. These cars' tax benefits are based on their engine size.
Engine size (cc) % of list price as benefit.
0 - 1400cc 15%
1401 - 2000cc 22%
over 2000cc 32%
The Government's tax percentage tables show the percentages based on the CO2 emissions figure. But the tax % can vary from year to year so you should have a look at the latest % at HMRC website (URL page address below) and the Vehicle Certification Agency, http://www.vcacarfueldata.org.uk or on the relevant car’s form V5. Similarly, the £8,500 income threshold may change. The Vehicle Certification Agency website also shows the CO2 emissions data, which is used to calculate the tax percentage, for cars registered from 1 March 2001, but this number is not definitive.
Diesel cars are subject to a supplement of 3% of the manufacturer’s list price (MLP) subject to the maximum charge of 35% of the MLP. So if the CO2 emissions figure is say 15%, if the vehicle has a diesel engine, the benefit you've received will rise to 18% of the manufacturers' list price.
Alternative Fuel and Technologies vehicles
Environmentally friendly vehicles receive a discount and include the following:
E85 fuel (petrol/YO Ethanol mix), Battery electric, Hybrid electric and cars that run on liquid petroleum gas or compressed natural gas.
Considerations which will reduce tax liability
If an employee makes a payment towards his/her company car, this will reduce the benefit on a £ for £ basis. i.e. if an employee pays £10/week (£520 a year) towards his car and the car tax benefit is £2,000, this will reduce tax liability. He/she will pay tax on £1,480 (£2,000 - £520) and not £2,000. On the HMRC car tax calculator UK (see below) or on the HMRC P11D value worksheet (also see below) these payments are called capital contributions.
The three factors in this are the MLP price plus relevant extras, the CO2 emissions percentage and your personal income tax percentage. You should be able to reduce tax liability by purchasing a less expensive car with lower CO2 emissions, although it depends too on your personal tax rate.
Want to work it out online?
Here's the HMRC website where we link directly to a car tax calculator UK – it’s online - so that you can work out the P11D value yourself. And car fuel benefit where fuel has been purchased for private mileage.
Or you can buy p11D software to do the job:
Want to work it out offline?
Prefer your car tax calculator UK to be a worksheet? You can download the P11D worksheet from the HMRC website at this URL address: http://www.hmrc.gov.uk/ebu/p11d-ws2-2008.pdf
Want to learn more?
You can download HM Revenue and Customs's p11d guide, which is in Adobe PDF format at http://www.hmrc.gov.uk/guidance/p11dguide.pdf This has complete details, or the p11D guide tells you where complete details can be found.(You may need booklet 480).
Prefer to discuss it all with an expert?
www.buymorecar.co.uk can put you in touch with a car tax accountant.
Contact Jeremy Feeney of buymorecar.co.uk for details.