Company Cars and Tax

5. Tax for Employers

5.1 Employers must pay Class 1A National Insurance contributions on the taxable value of cars and fuel given to employees.

• The rate of contributions is 12.8 per cent.
• Employers must use the car benefit and fuel scale charges when calculating these contributions.

5.2 The tax due on company cars and private fuel is collected through PAYE by an adjustment of the PAYE code.

• You must notify HM Revenue & Customs of any changes in company car use every quarter on form P46 (Car), due on the second day of February, May, August and November.

5.3 There are additional rules regarding VAT.

• Employers can recover VAT on fuel used for business purposes only. This applies even if an employee pays for the fuel and then claims the cost on expenses.
• Employers who provide fuel for private use at or below cost can recover VAT on the fuel purchase, but must then pay VAT following the set fuel scale charges. These are based on the car's CO2 emissions. From 1 May 2008, the VAT payable for a three-month VAT period ranges from £20.55 to £71.94.
• Employers do not have to apply the scale charges if they do not recover VAT on the purchase of private fuel.
• Employers do not account for VAT if they charge employees for the use of cars.