Winters Chartered Accountants and Registered Auditors
29 Ludgate Hill
London EC4M 7JE
England, UK

Tel:
+44 (0) 20 7919 9100

Fax: 
+44 (0) 20 7919 9019

e-mail:  
info@winters.co.uk

RELATED LINKS

FACTSHEETS

1. STARTING UP IN BUSINESS

2. GENERAL BUSINESS

3. CORPORATE AND BUSINESS TAX

4. VAT

5. EMPLOYMENT ISSUES

6. EMPLOYMENT AND RELATED MATTERS

7. PERSONAL TAX

8. CAPITAL TAXES

9. PENSIONS

10. ICT

11. OTHER

 

Information Factsheets

COMPANY CARS

The current regime for taxing company cars 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 tables for 2007/08 and 2008/09 are set out below

2007/08

 2008/09
CO2 emissions in grams per kilometre
% of car's price taxed CO2 emissions in grams per kilometre % of car's price taxed
140 15 120 or below 10
145 16 121 to 135 15
150 17 140 16
155 18 145 17
160 19 150 18
165 20 155 19
170 21 160 20
175 22 165 21
180 23 170 22
185 24 175 23
190 25 180 24
195 26 185 25
200 27 190 26
205 28 195 27
210 29 200 28
215 30 205 29
220 31 210 30
225 32 215 31
230 33 220 32
235 34 225 33
240 35 230 34
    235 35

Examples

Jane was provided with a new company car, a Mercedes CLK 430, on 6 April 2007. 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 2007/08 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 2007. Phil does fewer than 1,000 business miles each year. The CO2 emissions are 188 grams per kilometre.

Phil’s benefit in kind in 2007/08 will be: £21,000 x 24% = £5,040

For 2008/09 his benefit in kind will be: £21,000 x 25% = £5,250

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%.

From 6 April 2006 the 3% supplement is waived for diesel cars which achieve the clean level of Euro IV standard emissions and were registered on or before 31 December 2005. This waiver of the supplement is retained for the life of the car. Euro IV diesels registered from 1 January 2006 attract the 3% supplement from 6 April 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.

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 2007/08 is £14,400 (£16,900 for 2008/09). 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.

Business Fuel

No charge applies where the employee is reimbursed for fuel for business travel.

HMRC have published guidelines on fuel only mileage rates for company cars. The advisory rates are not binding and an employer may be able to agree higher rates with HMRC, perhaps where employees need to use particular types of car such as 4x4s to cover rough terrain. Employers can adopt the rates in the following table but may pay lower rates if they choose.

 
PETROL
DIESEL
 
1400cc or less
1401 to 2000cc
Over 2000cc
Up to 2000cc
Over 2000cc
1 July 2006 to
31 January
2007
11p
13p
18p
10p
14p
1 February to
31 July 2007
9p
11p
16p
9p
12p
From 1 August 2007
10p
13p
18p
10p
13p

Employees’ Use of Own Car

There is also a statutory system of tax and NIC free mileage rates for business journeys in employees’ own vehicles.

The statutory rates for 2006/07 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.

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