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.
West London
3 Brook Business Centre,
Cowley Mill Road,
Uxbridge, UB8 2FX
East London
London, E11 1GA
South London
London Bridge
73–81 Southwark Bridge Road,
London, SE1 0NQ
City London
London, EC2M 1JH
We believe we are more than just your average accountancy firm. Our goal at Barnes Roffe is to engage our clients through a proactive relationship, which provides you with the resources and tools you need to enable you to take charge of your finances with confidence.
Tax news, audit news and any new accounting news ... with the help of our topical tips, blogs and key guides you can enjoy the benefit of being regularly informed of business and accounting updates which are likely to be relevant to you and your business.
PLEASE NOTE: By the very nature of this type of information the details of tax law might have changed since they were published, so contact your Barnes Roffe partner before acting on any matter contained in these documents.