Company cars

Produced by Tolley

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Company cars
  • Introduction
  • Employees chargeable to tax
  • Is there a car benefit?
  • What counts as a car?
  • The car must be made available by reason of the employment
  • Available for private use
  • Calculating the benefit
  • The pricing stages ― calculating the notional price
  • Step 1 ― list price
  • More...

Company cars


Company cars are one of the most common taxable benefits. The rules for calculating the benefit are complex, and the reporting requirements are more onerous than most benefits. Company cars are covered by very specific legislation.

Detailed guidance on each of the following sections to cover specific circumstances is available at Simon’s Taxes E4.625, from HMRC at EIM23000 and within HMRC’s 480: Expenses and benefits ― a tax guide, chapters 12–16.

If the employer provides a cash alternative to the provision of a company car, this is subject to tax and NIC in the same way as salary.

Employees chargeable to tax

A taxable benefit arises on the provision of a company car by an employer to an employee (or a member of their family or household), where that car is available for non-business use. These rules apply where the employer owns the car and allows the employee use of the car. If the ownership of the car is transferred to the employee, see the Assets ― bought, sold or given guidance note and EIM23220.

The car benefit charge is designed to cover all the running costs of the car, such as service, insurance, road tax and congestion charge, and even covers fixed penalty notices provided the notice is attached to the car. Therefore, these costs are not charged separately as benefits in their own right.

However, this exemption does not extend to the provision of a driver, which is subject to the rules in ITEPA 2003, ss 201–210, see the Residual liability provisions guidance note.

Is there a car benefit?

What counts as a car?

For a taxable benefit to arise, the vehicle must be a car. A car is defined in ITEPA 2003, s 115 as a mechanically propelled vehicle which is not a goods vehicle, a motor cycle, an invalid carriage or a vehicle that is not commonly used as a private vehicle and unsuitable to be used as such. Therefore, every motor vehicle is treated

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