Payrolling Company Car Benefits

Payrolling company car benefits allows you to collect tax on vehicles through your regular payroll instead of completing P11D forms at year-end. If you choose to payroll car and car fuel benefits, you must send specific vehicle information to HMRC through your payroll software. This article explains what data you need to provide and how to handle changes during the tax year.

What is payrolling company car benefits?

Payrolling means you deduct and pay tax on employees' company cars through your payroll each pay period, rather than reporting the benefit on a P11D form after the tax year ends. From 6 April 2018, if you payroll car and car fuel benefits, you must send HMRC detailed information about the vehicles you provide to employees. This is done through your Full Payment Submission (FPS) — the regular payroll report you send to HMRC each time you pay employees.

If you don't payroll benefits, you must continue to complete form P46 (Car) separately when you provide a company car.

What information you need to send

When you payroll a company car benefit, you must provide the following information through your FPS (if your payroll software supports it):

• Make and model of car
• Date first registered (found on the V5C vehicle registration certificate)
• Carbon dioxide (CO2) emissions from the V5C
• Zero emission mileage (for cars with CO2 emissions of 1-50g/km from 2020/21 onwards)
• Fuel type
• Car identifier (such as the registration number to help you track which car is allocated to which employee)
• Calculated price
• Date car available from
• Date car available to
• Cash equivalent or relevant amount
• Date free fuel provided (if applicable)
• Cash equivalent or earnings foregone for fuel (if applicable)
• Date free fuel withdrawn (if applicable)
• Amendment indicator (for corrections)

Understanding specific fields

CO2 emissions

Enter the approved CO2 emissions figure from the V5C. For cars first registered before 1998 or some rare imported models where CO2 doesn't apply, enter 'X' in this field.

Zero emission mileage

For cars with CO2 emissions of 1-50g/km from the 2020/21 tax year onwards, you need the maximum distance in miles the car can travel in electric mode without recharging. You can get this from your car leasing firm, fleet provider, or the vehicle's Certificate of Conformity if you own it.

Fuel type

For the 2019/20 tax year onwards, select:

• 'F' for diesel cars meeting Euro standard 6d (also known as RDE2)
• 'D' for all other diesel cars
• 'A' for all other cars

For cars manufactured after September 2018, you can check Euro standard 6d status through the DVLA's online Vehicle Enquiry Service.

Calculated price

This is the list price of the car plus any accessories, minus any capital contribution the employee paid. Do not deduct payments for private use or amounts the employee has 'made good' — these don't reduce the calculated price.

Cash equivalent or relevant amount

The relevant amount is the taxable figure where an employee gives up salary to receive a company car instead (known as a salary sacrifice arrangement). Otherwise, enter the expected cash equivalent of the benefit.

When an employee gets a new car

If an employee changes to a different company car during the tax year, you need to recalculate the taxable amount. Here's how:

1. Work out the old taxable amount up to the day before the car changed

2. Calculate the new taxable amount from the change date to the end of the tax year

3. Add these together to get the total taxable amount for the full year

4. Deduct what you've already payrolled to date

5. Spread the remaining amount over the remaining paydays

Example: An employee gets a new company car on 1 August. The original taxable amount was £4,800, which equals £13.15 per day (£4,800 ÷ 365). There were 117 days to 31 July: 117 × £13.15 = £1,538.55.

The new taxable amount is £6,000, which equals £16.43 per day (£6,000 ÷ 365). There are 248 days left in the tax year: 248 × £16.43 = £4,074.64.

Total taxable amount for the year: £1,538.55 + £4,074.64 = £5,613.19.

You'd already payrolled £400 per month for 4 months = £1,600. Remaining amount: £5,613.19 - £1,600 = £4,013.19.

This should be payrolled over the remaining 8 paydays at £501.64 per month.

When an employee leaves

The car benefit usually ends on the employee's last working day. You must recalculate the taxable amount based on the actual days they had the car:

1. Work out the revised taxable amount for the days in the tax year they had the benefit

2. Deduct what you've already payrolled

3. Spread the remaining amount over their remaining paydays

If the employee has already received their final pay, you cannot payroll the remaining amount. You have two options:

Option 1: Report the taxable amount in taxable pay to date in your FPS and tell HMRC the employee has left.

Option 2: Include the untaxed balance on form P11D for the period the employee had the benefit that wasn't included in payroll.

HMRC will contact the employee to collect the unpaid tax whichever option you choose.

If the employee keeps the car after leaving

If you allow an employee to keep their company car until the end of the tax year after they leave, deduct what you've already payrolled from the full year's taxable amount and add the remaining tax to any final wage payments. If they've already had their last payday, notify HMRC so they can collect the tax directly.

Making corrections

If you entered wrong car data during the tax year, mark 'yes' in the amendment indicator field and enter the corrected details in your next FPS. You can correct information such as make and model, CO2 emissions, fuel type, calculated price, or availability dates.

If you discover an error after sending your last FPS for the tax year, send the correct details in the first FPS of the new tax year (if the car is still provided). Don't use the amendment indicator in this case.

You cannot report car data amendments on an Earlier Year Update (EYU) — corrections must be made through an FPS.

Correcting the taxable amount

If you used the wrong taxable amount by mistake:

1. Work out the correct taxable amount for the full tax year

2. Deduct what you've already payrolled

3. Spread the remaining amount over the remaining paydays

Example: The original taxable amount was £4,800. After 4 months, you realise the correct value is £6,000. You'd payrolled £400 per month for 4 months = £1,600. The balance is £6,000 - £1,600 = £4,400, which should be payrolled over the remaining 8 paydays at £550 each.

Carrying amounts forward to the next tax year

If you've made your final FPS and there's still an amount to be payrolled, you can carry it forward to the next tax year. Add the outstanding amount to the first wage payment in the new tax year.

If any change means the taxable amount has reduced, the employee will pay less tax or get a refund.

Note: Class 1A National Insurance contributions on the benefit cannot be carried forward. These are payable by 19 July after the tax year end.

For employees who complete Self-Assessment, they must report the correct amount of tax paid for each year, regardless of any amounts carried forward.

Sources

• Payrolling: changes affecting benefits and expenses
• Sending car data to HMRC: payrolling car benefit and car fuel benefit

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.