The provision of a company car is normally considered a taxable benefit for an employee or a director. The company car benefit charge for a full year is obtained by multiplying the price of the car for tax purposes (in most cases, its list price plus accessories less capital contributions) by the ‘appropriate percentage’.
The ‘appropriate percentage’ used to calculate the benefit is based on the CO2 emissions. From 6 April 2010, the lower threshold (the CO2 emissions figure which sets the 15% rate) was reduced from 135 to 130 g/km. This reduction will see an increase in the tax paid for many UK company car motorists. The rises have been imposed as the UK government looks to raise an additional £120 million from company car drivers and attempts to encourage them to make “greener” choices. Drivers with cars emitting no more than 120g/km are currently subject to a special favourable rate of 10%, although most diesel vehicles are taxed at 3% more than a petrol car with equivalent emissions.
Despite the tax rises for many company car users, legislation in Finance Bill 2010 will introduce a reduction to the chargeable benefit where a car has an approved CO2 emission figure of between 1 and 75 g/km. Company cars within this threshold will be subject to a new rate of just 5 per cent of their list price (subject to the 3% diesel supplement) and the measure will have effect from 6 April 2010 to 5 April 2015.
The company car tax thresholds will tighten further with effect from 6 April 2011 with the lower threshold being reduced from 130 to 125 g/km. From 6 April 2011, there will also be the following changes:
- The £80,000 ‘cap’ for the price of a car for car benefit purposes will no longer apply.
- There will no longer be any reductions for alternative fuels (hybrids, bi-fuels and cars manufactured to run on E85 – types H, B and G).
- The diesel surcharge will apply to all diesels (including type L diesels approved to Euro IV emissions limits and first registered before 1 January 2006).
Our car benefit calculator might help you with these calculations.
The rule changes will continue into April 2012 as the special rules for qualifying low emissions cars (for this purpose, those with CO2 emissions not exceeding exactly 120 g/km) will be overhauled. The ‘appropriate percentage’ rate of 10% will apply to cars with CO2 emissions of between 76 g/km and 99 g/km, which is a notable reduction from the current upper level of 120 g/km. The rate for emissions of 100 g/km will be 11% and will increase by 1% for every 5 g/km to the current maximum of 35%, as at present. This will lead to many company car drivers who currently benefit from the 10% rate having a significantly increased yearly tax charge.