Germany taxes a company car at 1% of its list price, every month

Britain taxes a company car through a table of emissions percentages applied to list price. Germany applies one number to one number, and the result is a system that is far easier to explain and much harder to game.

One percent, monthly

Where a company car is available for private use, German tax law adds 1% of the domestic list price to the employee's taxable income every month.

The list price is the price when the car was first registered, including options and VAT. Not what the employer paid, not what it is worth now. A discount negotiated by the fleet department does not reduce the charge, and neither does the car ageing.

That last point is worth sitting with. A five year old company car is taxed on exactly the same monthly figure as it was when new. In Britain the benefit charge also uses list price rather than current value, but the emissions percentage has moved so much over the last decade that an older car and a newer one can be taxed very differently. In Germany the number simply does not move.

Plus a charge for the commute

There is a second component, and it is the one British drivers do not expect.

If the car is also used to get to work, a further monthly amount is added, calculated from the distance between home and the workplace. The further you live from the office, the more your company car costs you in tax.

This sits oddly beside the commuting allowance, which pays you something for the same journey. Germany both recognises the commute as a cost and treats a company car used for it as a larger benefit. Those are consistent positions but they pull in opposite directions on the payslip.

Electric cars get a fraction of it

The policy lever Germany uses is not a table of bands. It is a fraction of the 1%.

A zero emission car below a list price cap is taxed at a quarter of the normal figure. Plug in hybrids meeting an emissions or electric range condition are taxed at a half. Everything else pays the full 1%.

This is a blunter instrument than Britain's graduated emissions percentages, and it produces sharper cliffs: a car a few hundred euros over the list price cap jumps from a quarter to a half of the charge with nothing in between. It is also much easier to understand, which is probably why compliance is better.

The alternative nobody uses

German law does offer an escape: keep a complete and contemporaneous logbook of every journey, business and private, and be taxed on the actual proportion of private use instead of the flat 1%.

For a driver with very little private use it can be worth far more than the flat charge. In practice it is rare, because the standard the logbook has to meet is exacting. It must be complete, kept as you go, and closed against alteration. A gap, a reconstruction or a spreadsheet edited after the fact and the whole thing is rejected, and you are back on the 1% for the entire year.

That is a genuine use case for something that records automatically and keeps a record you did not have to remember to write. The threshold is not effort, it is completeness, and completeness is exactly what manual logging fails at.

Sources

• § 6 Einkommensteuergesetz, the 1% rule at Absatz 1 Nummer 4
• § 5 Bundesreisekostengesetz, the separate business travel rate
• Tax on company cars (HMRC), for the British comparison
• Calculate tax on company cars (HMRC)

General information for drivers in Germany and the UK, not tax advice. The list price cap for the reduced electric rate has been raised more than once: check the current figure before relying on it.