If you use a car for business purposes, chances are you will have to pay company car tax. In this article, we will explore what company car tax is, how it is calculated and any recent changes you should be aware of. We will also discuss the impact of petrol and electric vehicles on company car tax and provide tips on how to lower your tax liability. A vehicle is considered a company car if your employer provides it to you as a benefit in addition to your salary, which you can use for personal use outside of working hours. Even if you only use the car for commuting, you will still have to pay tax on it. To calculate how much company car tax you need to pay, HMRC will consider how much you earn, the car’s CO2 emissions bracket and its P11D value. The P11D value is the list price of the car minus the first year’s Vehicle Excise Duty and registration fee. The tax rate varies between 20%, 40%, and 45% based on your income tax bracket. If you drive a hybrid, your company car tax rate will depend on the car’s electric-only range. For electric vehicles, the tax rate is currently fixed at 2% for the 2023/24 and 2024/25 tax years. To reduce your company car tax liability, you can opt for a cheaper car, avoid optional extras that increase fuel consumption, and choose a vehicle that emits less CO2. The P11D figures should be included correctly in your tax return, which your employer will provide around May each year, to ensure your tax liability is accurate. By choosing an electric or hybrid company car, you can also benefit from reduced tax rates.
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