Following the emissions scandal that erupted a few months ago HMRC have confirmed that benefits in kind that have already be calculated and declared by employers will not be restated if C0₂ emissions change on VW vehicles. In addition to the above the Transport Secretary has confirmed that additional road tax (vehicles excise duty) will also not be levied.

The above is good news for company car drivers and their employers. However it remains to be seen what HMRC will do for later years if the Vehicle Certification Agencies (VCAs) change the official C0₂ figure on VW vehicles. Potentially the benefit in kind charges and road tax could still increase in the future on these vehicles.

Think Tax When Choosing a Company Car

 The above reminds all company car drivers and employers that it is very important to consider the C0₂ emissions figure when deciding which car to purchase or lease, as this will have a big impact on the level of tax for the employee, the National Insurance the company pays and the corporation tax relief the company receives. Of course one hopes you can rely on the C0₂ emissions figure the manufacturer states!

For benefit in kind purposes the lower the C0₂ emissions then the lower the  benefit in kind charge, which is based on a % of list price. The % being based on the C0₂ emissions figure. For further details; http://www.barnesroffe.com/resources/calculators/transport-tax/

For example if you took a car with a list price of £30,000 and then you also add the standard fuel benefit of £22,100, if the car’s C0₂ emissions were 100 g/km the car and fuel benefit in kind would be at 15% (petrol) so £7,815. If the C0₂ emissions were 150 g/km the percentage would increase to 25% and the benefit in kind to £13,025.

If we assumed the individual was a higher rate tax payer then additional income tax of £2,084 would be due each year, and the employer would have additional National Insurance costs of £719 p.a for the higher emission vehicle.

In addition to the above if we assumed the car was acquired by the company, then for capital allowances purposes a car at 100 g/km would get writing down allowances at 18% per annum, as opposed to a car at 150 g/km which would only get writing down allowances at 8% per annum. The effect being approximately £600 per annum of additional corporation tax.

So in the above example you are looking at total additional tax costs for the employer and employee of approximately £3,400 p.a. This is before even considering the additional fuel costs of a higher emission vehicle. If the individual had been aware of the above in the showroom when the salesman was doing his best sales pitch would they have made the same decision!