The current regime for taxing the benefit of a company car is by reference to a combination of its list price (ie when new!) and CO2 emissions level. This has been around since 2002.

The cash equivalent value of a company car, i.e. the value on which the benefit is taxed, is found by applying the appropriate percentage for the car’s emissions level by the list price of the car and any optional accessories.

So even if you have a second hand car valued at £10,000 – you will be taxed on it as though it were new eg £30,000.


The company car tax system aims to influence behaviour by encouraging drivers to choose lower emission cars in return for a lower tax bill – the lower the CO2 emissions figure, the lower the appropriate percentage. However, the emissions criteria have become increasingly stricter year on year, meaning that generally an employee will pay more tax on the same car in the current tax year than in the previous tax year, despite the car being a year older and having done more mileage.

Diesel cars attract a 3% supplement on top of what the relevant percentage is; however, the overall percentage is capped at 37%.


If the CO2 emissions fall below the relevant threshold, the appropriate percentage for a particular car will fall into one of three tiers, as below:

Tax year 0-50g/km 51-74g/km 75-94g/km
2016/17 7% 11% 15%
2017/18 9% 13% 17%
2018/19 13% 16% 19%
2019/20 16% 19% 22%

Currently low emission cars offer a relatively cheap benefit. However, as you can see, by 2019/20 the relevant percentages will increase to bring them in line with cars with “regular” levels of emissions.


As we head into the future, very low appropriate percentages will increasingly be the domain of electric cars. As announced at the 2016 Autumn Statement, legislation will be included in the Finance Bill 2017 to create new emission bands for cars with CO2 emissions of 50g/km or less based on the electric range of the car.

These will come into effect from 2020/21 as follows:

CO2 emissions (g/km) Range (miles) Appropriate %
1-50 130+ 2%
1-50 70-129 5%
1-50 40-69 8%
1-50 30-39 12%
1-50 <30 14%


The electric range is the maximum distance that the car can travel without recharging the battery or using the combustion engine on a plug-in vehicle. Our advice to clients is therefore to consider moving to the provision of electrically powered cars if they wish to continue to provide vehicles as an employment perk in a tax-efficient way.