Company cars are still a popular benefit

Company cars still remain popular despite the ever increasing tax charges. There are various reasons; running a company car gives the employee more certainty over motoring costs and avoids having to keep laborious records and mileage logs to substantiate business mileage. In many cases a company car remains a status symbol.

A tax charge arises for a tax year when a car is provided to an employee or family member by reason of their employment and is available for private use. The private use rules are extremely strict and include home to office travel.

The charge to tax is based on the list price of the vehicle provided and a percentage which is determined by reference to the CO2 emissions figure. The percentage is normally between 15 and 35%. In simple terms a company car with a list price of £10,000 and CO2 emissions of 125g/km will pay tax for the year 2011/12 on £1500 (15% of £10,000).

Cars with very low emissions (120g for 2011/2012) will be taxed at a 10% rate. Diesel cars registered incur an additional 3% supplement on the appropriate percentage although this can still not exceed 35%. If fuel is provided this is an all or nothing tax charge applying the above percentage to a fixed figure of £18,800.

An employer may pay for all fuel and then obtain repayment of the private element from the employee driver. ALL private mileage must be properly identified by keeping mileage logs. In many cases fuel no longer constitutes a tax efficient benefit especially if the level of private mileage is low.
From 6 April 2011 discounts for cars running on alternative fuels, namely hybrids, bio-fuels, and cars manufactured to run on E85, have been abolished. In addition the £80,000 cap which previously applied to the list price has been removed.

From 2011/12 the rate of Class 1A National Insurance contributions payable by employers on benefits in kind increases by 1% to 13.8%.
There are of course alternatives to the company car, such as salary sacrifice, owning your car privately and claiming a business mileage tax free rate (45p per mile up to 10,000 business miles and 25p thereafter) and company vans are still an attractive option. If your employer pays a mileage rate below the Revenue rate you can claim the difference as part of your tax return.

With the various changes that have occurred concerning the provision of company cars it is a good time to contact us whether you are the company car provider or driver, to look at reviewing both the overall tax and financial implications of running them.