If a company car is supplied as part of your employment, and if you are able to use it for personal transport outside of work, then it becomes a taxable perk.
In official terminology your company car is a ‘Benefit In Kind’ (BIK), because your private use of the car has an actual monetary value. HMRC view that BIK is an addition to your normal income, because it is effectively paid for by your employer on top of your annual salary.
As in the case of all earned income, you will have to pay tax on it.
The starting point for working out the tax rate for the car you wish to run is its carbon dioxide (CO2) emissions, as different emission level bands are taxed differently – each model of car has a specific P11D value. This value is the HMRC-recognised list price of the car including options that are added to the vehicle.
If the car costs less to buy than the official P11D value it will not save you any tax, as HMRC will say that the BIK value must remain the same. The BIK value is reduced however if you only have the car on a part-time basis or if you pay something towards its cost in the first place.
It’s important to note that company car tax bands are not the same as Vehicle Excise Duty car bands. There are currently thirty different levels of BIK company car tax bands.