If you drive a company car and earn anything over £8,500, you will pay car benefit tax if there is any element of private use. How the car is funded has no bearing on this, the car can be owned outright, on hire purchase or a contract hire car in the case of business car leasing.
In a rare situation where a car is made available to a spouse or family member rather than the employee, the tax will still be fully payable.
If the car is given or sold to the staff member, ie ownership is transferred, no tax is paid.
Where a member of staff has no private use or the car is a pool car, there is no benefit tax payable. Additional exemptions include, an emergency services employee, where the car is fitted with a blue flashing light, as long as that person is liable to respond to emergencies as part of your day-to-day job. Also exempt is a member of staff is disabled and the car has been adapted with a few additional rules: no use other than work or commuting, travelling to any training is allowed.
Trying to understand the cash alternative
The benefit of your car is calculated using the cash equivalent calculation. Multiply its list price by the CO2 emissions derived factor. CO2 is measured as g/km. An example calculation would be.
List Price £22,000
Driver capital contribution £4000 (minus)
CO2 factor for the car 25%
Car benefit payable £5000
Car unavailable for 50% of the year £2500 (minus)
Paid for private use 6 months @£30 per month £180 (minus)
Car benefit payable at marginal rate on £2320.
The government publishes the CO2 emissions of cars on their website as well as being available from the DVLA and a manufacturers own site.
If the car is shared, then the tax is calculated based on the actual use so that apportionment is fair, it also allows that different tax rates are allowed for. No instruction is given from the tax authorities, the split is agreed by staff and the company.
If you would like to know more about car leasing and how to understand how it works, have a look at our information page.