With living costs increasing, your company car can make a dent in your tax bill – here’s how to keep your Benefit-in-Kind payments down
Pick a plug-in
HMRC has spent the last 20 years using company car tax to incentivise low-CO2 vehicles. The latest overhaul in 2020 introduced large incentives for vehicles emitting less than 50g/km – in other words, all electric and most plug-in hybrid models. If a plug-in suits your lifestyle, then choosing one is the easiest way to reduce your Benefit-in-Kind bill.
Until April 2025, electric cars (rated at 0g/km CO2) are taxed based on 2% of their list (P11d) price, whereas even the most efficient petrol or diesel models start at 29% – that’s usually enough to reduce your tax bill by 90%.
For context, a 20% taxpayer in a £30,000 Vauxhall Astra GS Line diesel would pay around £154 in Benefit-in-Kind per month, whereas their boss on a 40% income tax band would pay £79 for a £120,000 BMW iX M60. It’s hardly surprising that battery-electric has become the most popular powertrain type for new fleet lease cars, according to the British Vehicle Rental and Leasing Association (BVRLA).
If you are not ready to ditch combustion engines completely, the Benefit-in-Kind bands also heavily incentivise plug-in hybrids with the longest electric range – and this can offset the higher list price.
For example Toyota RAV4 Plug-in has an electric only range of 46 miles, so it falls into the 8% BIK band, the Ford Kuga ST-Line Edition travels 39 miles on a full charge and is taxed at 12% of the list price. Despite the Toyota’s £5,000 list price disadvantage, drivers would pay around 25% less tax than they would on the Ford.
Be selective with options
In 2017, Europe’s automotive industry switched to a new fuel efficiency test, catchily known as the Worldwide harmonised Light vehicles Test Procedure, or WLTP. Alongside tougher test conditions, this produces more granular data including recognising differences between trim levels and the effects of optional equipment on efficiency. Before you get carried away adding options, it’s worth double checking the larger wheels or panoramic sunroof you’ve just selected don’t push the car into a higher tax band. They can turn into expensive luxuries over a three-year lifespan.
Look out for fleet trims
Fleets and leasing companies have enough buying power to negotiate discounts on new cars that private buyers wouldn’t have access to. Unfortunately, this isn’t reflected in the list price and those discounts won’t result in lower Benefit-in-Kind for drivers.
To help pass those savings on, some manufacturers offer fleet-focused trim levels which add essential kit but effectively have the discount built into the list price. The result is lower Benefit-in-Kind payments than an equivalent retail-focused version.
Use commercial breaks
Commercial vehicles are a bit of a bargain in Benefit-in-Kind terms. Instead of being taxed based on CO2-weighted percentage of their list price, they have a flat taxable value of £3,600 (or £0 if they’re electric) which means they can offer a tax-efficient alternative to a large car.
That loophole has created a market for double-cab pickups among open-minded company car drivers. These offer two rows of seats, high-spec trim levels and more towing capacity than most families would ever need but, as long as they can carry a one-tonne payload, they’re still classed as a commercial vehicle. If you can live with the thirst for fuel and the crashy ride quality, then they’re a much cheaper company vehicle than a similarly-sized SUV.