It's difficult not to be pleased when you discover a new job comes with a company car, but depending on various factors, there could be a downside to being handed a set of the firm's wheels.

As with so many perks, the tax man likes to get involved in this one, too - resulting in more tax paperwork and potentially a change to your tax bracket.

Company car tax

That's right, there's a specific tax associated with your company motor. How much you pay depends on things like fuel type, CO2 emissions data and the brand and model.

So, is the company car actually a curse?

The good old HMRC class the company car as a 'benefit in kind' - or BIK - and add the vehicle's value to your salary. And even the most tax-ignorant among us know this means unsavoury news come filing day. The taxman/woman want their cut.

The addition could push you into another tax threshold. Therefore, someone who is below the tax threshold of £11,500 may well go from paying zero tax to 20% on anything above that.

For those who were earning £45,000 before receiving a company car (just inside the 20% tax bracket), the new set of wheels would certainly push them into the 40% tax bracket - which could mean a much bigger tax bill.

The additional tax related to the company car depends on:
  • CO2 emissions
  • Fuel type
  • Brand and model
  • The car's list price (plus any accessories and minus any capital contribution)
  • Frequency of vehicle use

P11D value

Once the tax year ends, the HMRC receives a P11D form from your employer, listing your benefits and expenses. Your car's value appears on this form, called the ‘P11D value’.

CO2 emissions

These are arrived at using a particular percentage: the vehicle's stated CO2 figure is changed into a percentage multiplier. This is then applied to the official list price. The taxable benefit charge for the tax year is thereby established.

Want to know more about calculating your company car tax? Visit the government page here.

Fuel - and tax implications

Some companies also make a contribution - in full or in part - to fuel usage. If they do, another tax is payable.

CO2 emissions are taken into account when determining car tax, which could result in the tax being higher than the actual fuel.

The HMRC has created a handy calculator to work out how much tax you might be liable for. See the link above.

So, is it worth accepting a company car?

It's important to work out how any company car will affect your tax bill. Some companies offer a company car to make a role more attractive, but in some cases it could be a drain on your finances.