Sarah Bradford explains the rules for taxing the benefit of a company car in 2024/25 and outlines future changes.
Where chosen wisely, a company car can be a very tax-efficient benefit. This will be the case where the employee’s car is a cheap, low-emissions model. By contrast, the tax hit on an expensive, high-emission car can be significant. A further tax charge may arise where the employer also meets the cost for private journeys in a company car.
To enable clients to choose wisely, it is important to understand how company cars are taxed, both in the current tax year and in future tax years.
Tax charge under the benefit-in-kind rules
A taxable benefit arises where a car is made available for an employee’s private use by reason of their employment. The rules are found in ITEPA 2003, ss 114–153.
The amount charged to tax
