Employment
issues (tax)
Company
Cars
The
current regime for taxing company cars has been in place since
April 2002. It is intended:
- to
encourage manufacturers to produce cars which are more environmentally
friendly and
- to
give company car drivers and their employers a tax incentive
to choose more fuel-efficient vehicles.
We
set out below the main areas of importance. Please do not
hesitate to contact us if you require further information.
The
Rules
Company
cars are taxed by reference to the list price of the car but
graduated according to the level of its carbon dioxide (CO2)
emissions.
Percentage charges
The percentage charge for the majority of cars is between
15% and 35%. The emissions table is set out below.
| CO2
emissions in grams per kilometre |
%
of car's price taxed |
| 2004/05 |
2005/06
& 2006/07 |
|
145 |
140
|
15 |
| 150
|
145
|
16 |
|
155 |
150
|
17 |
| 160
|
155
|
18 |
|
165 |
160
|
19 |
|
170 |
165
|
20
|
|
175 |
170 |
21
|
|
180 |
175
|
22
|
|
185 |
180
|
23
|
|
190 |
185
|
24
|
|
195 |
190
|
25 |
|
200 |
195
|
26
|
|
205 |
200
|
27 |
|
210 |
205
|
28 |
|
215 |
210
|
29 |
|
220 |
215
|
30 |
|
225 |
220
|
31 |
|
230 |
225
|
32 |
|
235 |
230
|
33 |
|
240 |
235
|
34 |
|
245 |
240
|
35 |
| If
the CO2 figure doesn’t end in a 5 or 0
round down to the nearest 5 grams per kilometre |
Examples
Jane was provided with a new company car, a Mercedes CLK 430,
on 6 April 2004. The list price is £50,000. The CO2
emissions are 281 grams per kilometre. Jane regularly drives
20,000 business miles each year.
Jane’s benefit in kind in 2004/05 and later years will
be £50,000 x 35% = £17,500
Phil has a company car, a BMW 318i, which had a list price of
£21,000 when it was provided new on 6 April 2004. Phil
does fewer than 1,000 business miles each year. The CO2
emissions are 188 grams per kilometre.
Phil’s benefit in kind in 2004/05 will be: £21,000
x 23%* = £4,830
*rising to 24% in 2005/06 and 2006/07.
Note: The CO2 emissions are rounded down to the nearest
5 grams per kilometre - in this case 185.
Diesels
Diesel cars emit less CO2 than petrol cars and so
would be taxed on a lower percentage of the list price than
an equivalent petrol car. However, diesel cars emit greater
quantities of air pollutants than petrol cars and therefore
a supplement of 3% of the list price applies to diesel cars.
For example, a diesel car that would give rise to a 22% charge
on the basis of its CO2 emissions will instead be
charged at 25%. The maximum charge for diesel is capped at 35%.
The 3% supplement will be waived if the car achieves the clean
level of Euro IV standard emissions. From 6 April 2006, the
waiver will cease for cars registered on or after 1 January
2006. The waiver was introduced to encourage early take up of
Euro IV technology and has achieved that purpose. Euro IV emission
standards will become mandatory for all new diesel cars registered
from 1 Janaury 2006. The waiver will be retained for the life
of diesel cars that meet the Euro IV standards and were registered
before 1 January 2006.
Obtaining emissions data
The Vehicle Certification Agency produces a free guide to the
fuel consumption and emissions figures of all new cars. It is
available on the internet at www.vcacarfueldata.org.uk
These figures are not however necessarily the definitive figures
for a particular car:
- for
all cars first registered from 1 March 2001 onwards, the
definitive CO2 emissions figure is recorded on
the Vehicle Registration Document (V5)
- for
cars first registered between 1 January 1998 and 28 February
2001, the definitive figure is found by going to www.smmt.co.uk
This is a service provided by the Society of Motor Manufacturers
and Traders (SMMT).
The
list price
- the
list price of a car is the price when it was first registered
including delivery, VAT and any accessories provided with
the car or subsequently made available (unless they have
a list price of less than £100)
- the
list price is restricted to an upper limit of £80,000
- employee
capital contributions up to £5,000 reduce the list
price.
Employer’s
Class 1A contributions
The
benefit chargeable to tax on the employee is also used to
compute the employer’s liability to Class 1A.
The
Exceptions
Cars
first registered before 1 January 1998
There is no reliable source of CO2 emissions data
for cars registered before 1 January 1998. Such cars are taxed
according to their engine size.
| Engine
size (cc) |
%
of list price charged to tax |
| 0
- 1400 |
15% |
| 1401
- 2000 |
22% |
| over
2000 |
32% |
Imports
Some cars registered after 1 January 1998 may have no approved
CO2 emissions figure, perhaps if they were imported
from outside the EC. They too are taxed according to engine
size.
| Engine
size (cc) |
%
of list price charged to tax |
| 0
- 1400 |
15% |
| 1401
- 2000 |
25% |
| over
2000 |
35% |
Private
Fuel
There
is a further tax charge where a company car user is supplied
with or allowed to claim reimbursement for fuel for private
journeys.
From 6 April 2003 the fuel scale charge is based on the same
percentage used to calculate the car benefit. This is applied
to a set figure which for 2004/05 is £14,400. As with
the car benefit, the fuel benefit chargeable to tax on the
employee is used to compute the employer’s liability
to Class 1A. The combined effect of the charges makes the
provision of free fuel a tax inefficient means of remuneration
unless there is high private mileage.
The benefit is proportionately reduced if private petrol is
not provided for part of the year. So taking action now to
stop providing free fuel will have an immediate impact on
the fuel benefit chargeable to tax and NIC.
Please note that if free fuel is provided later in the same
tax year there will be a full year’s charge.
Employees’
Use of Own Car
A
statutory system of tax and NIC free mileage rates for business
journeys in employees’ own vehicles has been in place
since 6 April 2002.
The statutory rates for 2004/05 are:
|
Rate
per mile |
| Up
to 10,000 miles |
40p |
| Over
10,000 miles |
25p |
Employers
can pay up to the statutory amount without generating a tax
or NIC charge.
Payments made by employers are referred to as ‘mileage
allowance payments’.
Where employers pay less than the statutory rate (or make
no payment at all) employees can claim tax relief on the difference
between any payment received and the statutory rate.
How
We Can Help
We
can provide advice on such matters as:
- whether
a company car should be provided to an employee or a private
car used for business mileage
- whether
employee contributions are tax efficient
- whether
private fuel should be supplied with the company car.
Please
contact us for more detailed advice.
Top
of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
|
C o m p l e t
e 
Regulated
to carry on audit work for a range of investment business
activities by the Institute of Chartered Accountants in England
and Wales