How to reduce your company car tax bill

To mangle an old saying, only two things are certain in this world: death and company car tax. You can't avoid the first and however you try to dodge the second, you'll always end up paying something.  Of course, this assumes you have a company car but with around 700,000 people in receipt of one, the chances are reasonably high.  To the tax man, a company car is a cash cow with, in the tax year 2021/22, the total taxable value of company car benefit amounting to £3.95 billion. However, to misappropriate another phrase, the times they are a-changin'.  Related articles Two words: electric cars. These attract much less tax than petrol and diesel cars which is why they're such a hit with company car drivers. In the tax year 2021/22, for example, the number of recipients of company cars having CO2 emissions of 75g/km or less was 243,000 compared with 137,000 in the previous tax year. Fully electric cars accounted for 17% of car benefit recipients. That was three years ago when the proportion of company EVs has increased dramatically thanks to their growing popularity and initiatives such as salary sacrifice. In short, the tax man is losing money but he's not about to give up without a fight. Here's how to leave the ring with your shirt on.  What is a company car? It's a car given to you by your employer in addition to your salary and which you can use for private as well as business journeys. Private use includes commuting. What is company car tax? It's a tax on a benefit, in this case a car. You may think the vehicle is separate from your salary but to the tax man it's another form of payment, ripe for taxing. It's why the Inland Revenue calls it a benefit-in-kind tax. How is company car tax calculated? The tax is based on a combination of the car’s list price including VAT and extras (together called the P11d value), multiplied by the vehicle's official CO2 emissions expressed as a percentage and known as the BIK rate. The result, multiplied by the employee's personal tax band, is the amount of tax the employee must pay on the car.  BIK rates range from a high of 37% for cars emitting more than 170g/km CO2 to 2% for those emitting no CO2. For hybrids, the vehicle's battery-only range is also a factor in determining the BIK rate. A 4% surcharge applies to diesel vehicles not meeting the latest RDE2 emissions standard.  Example: P11D value of the car: £20,000CO2 emissions: 95g/kmFuel type: PetrolCar's BIK rate: 24%User's personal tax band: 20%Car's BIK value (P11d x BIK rate): £4800Tax charge (BIK value x personal tax band): £960 a year or £80 per month What are the advantages of a company car? Even paying the tax, a company car driver is better off than someone financing their own wheels from their net income. Taking the example above, they'd be hard-pressed to finance a new car for £80 a month.