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Car Taxation

Company Car Taxation

One of the most critical elements when choosing a company car is the personal taxation implication of your chosen vehicle. Since April 2002 company car tax has been calculated on the basic elements of P11D price, personal taxation band and CO2 emissions of the vehicle, rather than business mileage. In this section you will find out exactly how to calculate the amount of tax you will pay under the CO2-based method of calculation.

If you are looking for an alternative to the company car scheme LeaseMyNewCar will help you find the right solution. Here are some of the most popular questions asked by our customers:

How is company car tax calculated?

In April 2002 a graduated system of tax was introduced that bases company car tax rates on CO2 emissions. A vehicle's CO2 emission level determines the percentage of the on-the-road cost that can be taxed. This means that vehicles with lower CO2 emissions will incur a lower tax liability.

The previous mileage band structure determining taxation levels has been replaced and company car tax benefit is no longer influenced by the number of business miles a company car is used for. This means that low business mileage users will pay the same tax as high business mileage users.

How are C02 levels measured?

CO2 emission levels are measured in terms of the weight of CO2 produced for every kilometre that the vehicle travels (g/km).

All new vehicles registered after March 2001 will include their official CO2 rating on their registration document (V5).

What is the P11D value of my car?

The P11D value of a car will generally be the manufacturer's list price for the car (and any options fitted) including VAT, number plates and delivery charges, excluding any options which cost less than 100 and which were fitted after the car was first made available to you.

Will there be any business discounts under the new legislation?

Business mileage discounts were abolished altogether under the new legislation.

The previous mileage band structure determining taxation levels has been replaced and company car tax benefit is no longer influenced by the number of business miles a company car is used for.

This means that low business mileage users will pay the same tax as high business mileage users.

Is there an example of how to work out the taxation implications for my new car?

The CO2 tax rate is multiplied by the P11D value of the car to derive the annual taxable benefit value. The rate of income tax paid by the driver is applied to this amount to give the annual cost in tax.

Example 1)

The Mercedes-Benz C180 Avantgarde SE Auto saloon has CO2 emissions of 193g/km, which incurs a tax rate of 25% in 2005/6 (see CO2 tax bandings). Note that if over the next three years, the CO2 emissions within each tax percentage band fall annual taxation costs may increase for the same car.

The annual taxable benefit of a Mercedes Benz C180 Avantgarde SE auto saloon would be 25% of its P11D value of 24119. This works out at 6029.75, and is the amount that the driver would pay tax against.

A driver on the lower level of income tax would pay 23% of this cost: 6029.75 x 23% = 1386.84 (an equivalent of 115.57 per month).

A driver on the upper level of income tax would pay 40% of this cost: 6029.75 x 40% = 2411.19 (an equivalent of 199.99 per month).

Example 2)

The Jaguar S Type 2.7 D V6 SE Auto saloon has CO2 emissions of 208g/km, which incurs a tax rate of 31% in 2005/6 including the additional 3% supplement (see CO2 tax bandings). Note that if over the next three years, the CO2 emissions within each tax percentage band fall annual taxation costs may increase for the same car.

The annual taxable benefit of a Jaguar 2.7 D V6 SE Auto saloon would be 31% of its P11D value of 33787. This works out at 10473.97, and is the amount that the driver would pay tax against.

A driver on the lower level of income tax would pay 23% of this cost: 10473.97 x 23% = 2409.01 (an equivalent of 200.75 per month).

A driver on the upper level of income tax would pay 40% of this cost: 10473.97 x 40% = 4189.58 (an equivalent of 349.13 per month).

How can I pay a lower rate of Company Car Tax?

Because the level of tax you pay depends upon the amount of emissions your car produces, look for a vehicle with a low Co2 rating. Diesel vehicles have significantly lower Co2 outputs than their petrol rivals, so although driving a diesel can make a big difference, choosing a smaller petrol-engined car may save you even more. Cars with automatic gearboxes often emit more Co2 emissions than those with manual transmissions, so choosing to shift the gears yourself can also make a worthwhile difference.

What is a Diesel Euro 4 compliant engine & what can it do for me?

A Euro 4 compliant engine meets the latest stringent European emissions test regulations, offering better performance, greater running smoothness and greatly reduced exhaust gas pollutants. Unfortunately Diesel Euro 4 compliant vehicles will no longer have the diesel supplement of 3% waived, all diesel cars with carry an additional 3% supplement to the % amount taxed.

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