Company car benefit

Following on from Duncan Stannett’s recent blog on Fuel scale charges and fuel benefit-in-kind, I thought it a good opportunity to remind ourselves about the company car benefit rules and tease out some tax planning points for both employer and employee.

One of the most common benefits offered by employers to their employees is the provision of a company car for private motoring.

The taxable benefit of this is calculated as a percentage of the list price of the car, on the day before it was first registered, plus certain accessories. This percentage depends upon the rate at which the car emits carbon dioxide (CO2) and the fuel type, although from April 2016 the Government will remove the 3% diesel supplement so that diesel cars will be subject to the same level of tax as petrol cars.

Essentially, the lower the emissions, the lower the benefit. This is an attempt by the government to be responsible with regard to the protection of the environment.

For example, the taxable benefit of a company car (list price £25,000, petrol), co2 g/km emission of 185 g/km, is currently £7,500 (2014/15 – £25,000 * 30%) and this will increase to £9,250 by 2018/19 (£25,000 * 37%), with further increases anticipated.

Employers suffer a Class 1a National Insurance charge at 13.8% on the benefit calculated whilst an employee will suffer income tax at their marginal rate.

The appropriate percentages for the current and forthcoming tax years (up until 2018/19) are listed below:

C02 emissions (g/km) *

2014/15

2015/16

2016/17

2017/18

2018/19

0

0%

5%

7%

7%

7%

1 – 50

5%

5%

7%

7%

7%

51 – 75

5%

9%

11%

11%

11%

76 – 94

11%

13%

15%

17%

19%

95

12%

14%

16%

18%

20%

100

13%

15%

17%

19%

21%

105

14%

16%

18%

20%

22%

110

15%

17%

19%

21%

23%

115

16%

18%

20%

22%

24%

120

17%

19%

21%

23%

25%

125

18%

20%

22%

24%

26%

130

19%

21%

23%

25%

27%

135

20%

22%

24%

26%

28%

140

21%

23%

25%

27%

29%

145

22%

24%

26%

28%

30%

150

23%

25%

27%

29%

31%

155

24%

26%

28%

30%

32%

160

25%

27%

29%

31%

33%

165

26%

28%

30%

32%

34%

170

27%

29%

31%

33%

35%

175

28%

30%

32%

34%

36%

180

29%

31%

33%

35%

37%

185

30%

32%

34%

36%

37%

190

31%

33%

35%

37%

37%

195

32%

34%

36%

37%

37%

200

33%

35%

37%

37%

37%

205

34%

36%

37%

37%

37%

210

35%

37%

37%

37%

37%

215

35%

37%

37%

37%

37%

220 & above

35%

37%

37%

37%

37%

* Except where noted in the table, CO2 is always rounded down to the nearest 5 grams per kilometre.

As is evident from the table above, the cost for the provision of a company car will continue to increase for both employers and employees in future tax years.

Company car tax may mean that it is more tax-effective for employees to use their own cars and be reimbursed. You can pay up to HMRC’s approved mileage rate (45p per mile for the first 10,000 miles and 25p per mile thereafter) without any tax or National Insurance being due.

If you are going to provide a company car, clearly a low-emission vehicle is more tax-efficient. In addition, careful consideration should be given to whether it is worth providing fuel for private use, as the better alternative is often for business miles to be reimbursed instead at the special rates allowed for company cars.

It’s worth taking advice on the full tax implications of offering company cars – the rules are becoming increasingly strict to encourage businesses and individuals to drive more environmentally-friendly cars.

Please contact Barnes Roffe LLP for more guidance in this area.

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