{"id":618,"date":"2012-06-19T15:32:50","date_gmt":"2012-06-19T15:32:50","guid":{"rendered":"http:\/\/my-brains.co.uk\/jackross\/jack-ross-news\/?p=618"},"modified":"2012-06-19T15:32:50","modified_gmt":"2012-06-19T15:32:50","slug":"company-car-taxation","status":"publish","type":"post","link":"https:\/\/my-brains.co.uk\/jackross\/company-car-taxation\/","title":{"rendered":"Company Car Taxation"},"content":{"rendered":"

\u201cEverything in life is somewhere else, and you get there in a car.\u201d E. B. White<\/em><\/strong><\/p>\n

Company cars remain an important tool in rewarding, attracting and retaining staff. It therefore comes as no surprise that the Government views the provision of company cars by employers to their employees as a lucrative source of revenue for the UK.<\/p>\n

With the UK Government also committed to lowering CO2<\/sub> emissions, this guide seeks to explore the company car tax rules, the upcoming proposed changes and how tax legislation is being used to encourage businesses to use more environmentally-friendly vehicles. A review by both employers and employees of their company vehicle(s) may be appropriate. Please contact us for advice.<\/p>\n

Company Car Benefit<\/strong><\/p>\n

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’.<\/p>\n

The \u2018appropriate percentage\u2019 used to calculate the benefit is based on the level of CO2 <\/sub>emissions. The benefit charge is then subject to tax at the effective tax rate of each individual. Employers pay Class 1A National Insurance contributions (NIC) on the benefit at 13.8 per cent.<\/p>\n

The taxable value of the benefit remains up to a maximum of 35 per cent of the list price of the car when first registered. A common mistake is for taxpayers to assume the calculation is based on the second hand purchase price or the depreciated value of the car, which could yield a much lower benefit.<\/p>\n

It is important to note that the list price includes the full cost of the car, car tax (if applicable), Value Added Tax and delivery charges. There is no cap on the list price of the car for calculating the benefit. The list price of most accessories must be included whether fitted when new or subsequently.<\/p>\n

Cars running solely on diesel fuel are currently subject to a 3 per cent supplement, subject to the 35 per cent cap mentioned above. Employees and directors who are provided with a company car that is propelled solely by electricity will not have to pay tax on the benefit. Additionally, cars first registered before January 1998, for which there are no reliable CO2<\/sub> emissions data, is taxed according to their engine size.<\/strong><\/p>\n

Fuel Benefit Charge<\/strong><\/h3>\n

Where the employer also pays for any fuel used privately by the employee, there is an additional benefit charge applied to a standard value of \u00a320,200. This charge is based on the same CO2<\/sub> car benefit percentages referred to above.<\/p>\n

There is no fuel benefit charge for vehicles propelled solely by electricity.<\/p>\n

Employee Contributions<\/h3>\n

Where the employee contributes to the cost of the car, the figure for list price is reduced accordingly on a pound for pound basis, to a maximum contribution of \u00a35,000.<\/p>\n

By contrast it is \u2018all or nothing\u2019 for the fuel benefit charge, thus the full tax charge on the value of the benefit is due unless the employee reimburses all private fuel costs.<\/p>\n

HM Revenue & Customs has published advisory fuel-only rates which will be accepted either for employers reimbursing employees for the cost of fuel for business mileage, or for employees reimbursing employers for the cost of fuel for private mileage in a company car. Alternative rates may be negotiated, for example when it is necessary for the performance of his or her duties that an employee uses a vehicle with a typically higher fuel consumption rate.\u00a0 The advisory fuel-only rates are reviewed four times a year on 1 March, 1 June, 1 September, and 1 December. Please contact us for the most up to date rates.<\/p>\n

Tax payable<\/strong><\/h3>\n

Income tax at the basic, higher or additional rate is chargeable depending on the employee’s rate of pay. The tax is usually collected under the PAYE system by appropriate adjustment of the employee’s tax code.<\/p>\n

For the benefit to be attractive, the employee must pay less in extra tax than it would cost them to run their own car out of their taxed income.<\/p>\n

These are examples of the 2012\/13 tax costs to an employee of a company car:<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n<\/td>\n\n

Petrol<\/strong><\/p>\n<\/td>\n

\n

Diesel<\/strong><\/p>\n<\/td>\n<\/tr>\n

Applicable tax rate <\/strong><\/td>\nList price<\/strong><\/td>\nCO2 emission g\/km<\/strong><\/td>\n\n

Car<\/strong><\/p>\n<\/td>\n

\n

Fuel<\/strong><\/p>\n<\/td>\n

\n

Car<\/strong><\/p>\n<\/td>\n

\n

Fuel<\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

20%<\/p>\n<\/td>\n

\n

\u00a318,000<\/p>\n<\/td>\n

\n

200<\/p>\n<\/td>\n

\n

\u00a31,116<\/p>\n<\/td>\n

\n

\u00a31,252<\/p>\n<\/td>\n

\n

\u00a31,224<\/p>\n<\/td>\n

\n

\u00a31,374<\/p>\n<\/td>\n<\/tr>\n

\n

40%<\/p>\n<\/td>\n

\n

\u00a318,000<\/p>\n<\/td>\n

\n

200<\/p>\n<\/td>\n

\n

\u00a32,232<\/p>\n<\/td>\n

\n

\u00a32,505<\/p>\n<\/td>\n

\n

\u00a32,448<\/p>\n<\/td>\n

\n

\u00a32,747<\/p>\n<\/td>\n<\/tr>\n

\n

50%<\/p>\n<\/td>\n

\n

\u00a318,000<\/p>\n<\/td>\n

\n

200<\/p>\n<\/td>\n

\n

\u00a32,790<\/p>\n<\/td>\n

\n

\u00a33,131<\/p>\n<\/td>\n

\n

\u00a33,060<\/p>\n<\/td>\n

\n

\u00a33,434<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Company Vans<\/strong><\/strong><\/p>\n

The taxable benefit for the unrestricted use of company vans is \u00a33,000 plus a further \u00a3550 of taxable benefit if fuel is provided by the employer for private travel.\u00a0 Home to work travel in a company van is not deemed to be private use.<\/p>\n

The tax payable on the use of a company van ranges from \u00a3600 up to \u00a31,775 p.a., and the employer’s Class 1A NIC\u00a0payable ranges from \u00a3414 to \u00a3489.90 p.a.<\/p>\n

Business Use of an Employee’s Own Car<\/strong><\/p>\n

It is normal practice for employees to be reimbursed per mile for business use of their own cars. \u00a0A statutory system of tax and NIC free mileage rates applies for business journeys in employees’ own vehicles:<\/p>\n

\n\n\n\n\n\n\n\n
\n

Cars and vans<\/strong><\/p>\n<\/td>\n<\/tr>\n

On the first 10,000 miles in the tax year<\/td>\n45p per mile<\/td>\n<\/tr>\n
On each additional mile above this<\/td>\n25p per mile<\/td>\n<\/tr>\n
Motor cycles<\/td>\n24p per mile<\/td>\n<\/tr>\n
Bicycles<\/td>\n20p per mile<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

Excess mileage payments are reportable on forms P11D and taxed accordingly. Note that the lower rate for more than 10,000 business miles only applies to income tax. The NIC rate remains at 45p for any number of miles incurred.<\/p>\n

If an employee travelling on business carries fellow employees as passengers, they may be reimbursed a further 5p per passenger tax free provided it is a business journey in respect of the passengers. No claim can be made if the employer does not pay passenger payments.<\/p>\n

Tax-Free Benefits<\/strong><\/p>\n

Car parking<\/span><\/p>\n

The provision of a car parking space at or near the employee’s place of work is not an assessable benefit.<\/p>\n

Pool cars<\/span><\/p>\n

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others. Please note that a pool car must not normally be kept overnight at or near an employee’s home.<\/p>\n

\u2018Lower paid\u2019 employees<\/span><\/p>\n

The provision of a car for an employee other than\u00a0a director who is paid at a rate below \u00a38,500 per year (including the value of benefits) does not\u00a0attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.\u00a0 This concession is now less favourable given the personal allowance has steadily risen to \u00a38,105, whilst the \u2018lower paid\u2019 employee limit has remained unchanged.<\/p>\n

Company Cars \u2013 Post 2012\/13<\/strong><\/p>\n

Many employees and employers will see an increase in their respective income tax and NIC bills in the coming years.\u00a0 Some of the announcements already made are listed below.<\/strong><\/strong><\/p>\n