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A: No matter how much you hate them, they are a fact of life.
Company car drivers are a common breed on Britain's roads, with an estimated 1.3 million-strong community of employees who pay tax to run a company car available for private use.
The tax bill is designed to do two things. Firstly to reflect the benefit of having access to a car for private use and secondly, because the amount of tax is directly related to the amount of carbon dioxide produced by a car, it is designed to push drivers into more environmentally-friendly cars.
The Government has put green issues at the top of its agenda, not least reducing the levels of carbon dioxide produced each year.
Carbon dioxide (C02) is the main contributor to global warming, allowing heat in from the sun, but stopping heat from escaping into the atmosphere, hence the term 'greenhouse gas'.
Road transport is responsible for about one-fifth of all emissions, so encouraging use of cars that reduce emissions is important if the Government is to meet its targets.
So how does company car tax work?
You will be sorry you asked. Although the idea of reducing the emissions from cars is relatively simple, the taxation behind it can be very complicated.
Basically, you will pay tax on a percentage of the value of your car, which is the new price published by the manufacturer, plus VAT, delivery, numberplates and any optional extras. This is called the P11d value.
But you don't pay tax on the whole amount, just a percentage, which is decided by the carbon dioxide emissions of your car. To find this figure, you can either look at the car's V5, or use an official guide, available from the Vehicle Certification Agency (www.vca.gov.uk).
The CO2 figure decides what percentage of the value of the car will be taxable, starting at 10% for 120g/km and rising to 35% for 235g/km. (see table).
Bands remain the same for 2009/10 but in 2010/11 the 15% band will move down 5g/km along with all bands above it, meaning the starting rate for the tax will be 130g/km.
| CO2 in g/km* | Petrol | Diesel |
| 120 and below | 10% | 13% |
| 121 to 139 | 15% | 18% |
| 140 | 16% | 19% |
| 145 | 17% | 20% |
| 150 | 18% | 21% |
| 155 | 19% | 22% |
| 160 | 20% | 23% |
| 165 | 21% | 24% |
| 170 | 22% | 25% |
| 175 | 23% | 26% |
| 180 | 24% | 27% |
| CO2 in g/km* | Petrol | Diesel |
| 185 | 25% | 28% |
| 190 | 26% | 29% |
| 195 | 27% | 30% |
| 200 | 28% | 31% |
| 205 | 29% | 32% |
| 210 | 30% | 33% |
| 215 | 31% | 34% |
| 220 | 32% | 35% |
| 225 | 33% | 35% |
| 230 | 34% | 35% |
| 235 | 35% | 35% |
Once you have this figure, you pay tax on the figure at your higher rate (either 20% or 40%), and this is normally deducted every month from your salary.
Choose your car wisely and you could be quids in, choose a gaz-guzzler and you pay heavily, as you can see from the examples.
So why is everyone buying diesels?
The simple answer is they produce less CO2, so the tax bill should be smaller.
However, they also cost more at the front end, so you have to make sure the higher P11d price doesn't outweigh any advantage from a lower tax banding.
You also need to do your homework on fuel costs, because diesel costs more at the pumps than petrol and you need to meet the predicted fuel economy figures from the manufacturer to gain a real benefit.
What is all this I have been hearing about Euro IV diesels?
All diesel company cars have a 3% penalty added to their tax band, so a car whose emissions should mean it is taxed at 15% rises to 18%. This is to reflect concerns about particulates and other nasties that come out of diesel exhausts.
The Government said this 3% levy would be scrapped for the cleanest Euro IV standard diesels, making them very attractive. Sadly for you, this discount was scrapped from January 1, 2006 and the 3% supplement reintroduced for all new diesels. If you already drive a Euro IV diesel, don't worry, the discount remains for the fleet life of the car.
What about alternative fuels?
There is a 3% discount for hybrids (petrol/electric cars such as the Toyota Prius or Honda Civic) and a 2% discount for LPG and a 6% discount for electric only cars, but as list prices are higher, you may not benefit in tax terms.
Where do I go from here?
If you need help working out your tax bill, go to the tax calculator on this website. Or visit the intimidating world of HM Revenue & Customs' website at the following link for employees.
Calculating your company car tax bill
Click here to calculate the tax on your next company car
Vehicle Excise Duty
The humble tax disc is at the frontline of the battle against CO2 emissions.
The Government already encourages buyers to opt for cleaner cars with increased road tax bills for higher polluting cars, but from next year it will take a tougher approach.
New first year penalties and incentives will be introduced which slash road tax to zero for some of the cleanest vehicles, but push it up to nearly £1,000 for the highest polluters.
In future years, this banding system will be used to spread the financial gap between the cleanest and thirstiest models on the roads.
| CO2 emissions (g/km) | 2008-09 tax | Tax band |
| Up to 100 | £0 | A |
| 101-120 | £35 | B |
| 121-150 | £120 | C |
| 151-165 | £145 | D |
| 166-185 | £170 | E |
| Over 186 | £210 | F |
| Over 226 | £400 | G |
| CO2 (g/km) | 2009-2010 | 1st year | 2nd year & after | Band |
| Up to 100 | £0 | £0 | £0 | A |
| 101-110 | £20 | £0 | £20 | B |
| 111-120 | £30 | £0 | £35 | C |
| 121-130 | £90 | £0 | £95 | D |
| 131-140 | £110 | £115 | £115 | E |
| 141-150 | £120 | £125 | £125 | F |
| 151-160 | £150 | £155 | £155 | G |
| 161-170 | £175 | £250 | £180 | H |
| 171-180 | £205 | £300 | £210 | I |
| 181-200 | £260 | £425 | £270 | J |
| 201-225 | £300 | £550 | £310 | K |
| 226-255 | £415 | £750 | £430 | L |
| Over 255 | £440 | £950 | £455 | M |
Source: HM Treasury