Does it pay off to provide zero-emission cars?

Offering a company car as a benefit can be a valuable and attractive perk to any valued employee.

Unfortunately, it is not necessarily a tax-free perk and it may be liable for PAYE because HMRC considers the private use of a company car to be a benefit-in-kind.

In some cases it can even be quite costly to the employee, especially if the company also pays for the fuel.

Factors including fuel type, carbon dioxide (CO2) emissions, the car manufacturer and model, and how long the car is available in the tax year will all affect the amount of tax the employee has to pay. In addition, the employer may have to pay employer national insurance contributions (NICs).

For those looking to reduce their carbon footprint, providing a zero or low-emission car to a worker can be highly tax-efficient.

To understand why this is the case, you need to understand how the car benefit-in-kind is calculated.

A company car can be any vehicle – car, van or motorcycle – which is provided to the employee for business and private travel. Different rules apply to company vans and are not covered in this article, which is only about company cars.