taxation of company cars

Over recent years, several tax changes relating to cars have come into effect and new developments always seem to be in the pipeline. Here is a useful overview of the main features of the current position. 

Capital allowances for low emission cars

A full 100% first year capital allowance is available for expenditure on cars with very low CO2 emissions. The low emissions figure is currently capped at 75g/km.

Capital allowances for other cars

The annual investment allowance, providing immediate tax relief for expenditure of up to £500,000 on plant or machinery is not available for cars.

Instead cars are eligible for the writing down allowance each year. The level of this allowance will be dependent upon the car’s CO2 emissions whereby a 18% allowance is given for cars with CO2 emissions between 76g/km and 130g/km and a 8% allowance is given for cars with CO2 emissions over 130g/km.

Company cars – benefit in kind

The rate of taxable benefit is connected with the car’s CO2 emissions and recent years have seen HMRC reduce the ‘lower threshold’ for CO2 emissions for particular rates of benefit.

The rate of benefit will also vary depending upon whether the car is petrol or diesel and will apply to the list price of the car regardless of its age and condition. Therefore it can prove particularly costly for cars that are in poor condition and have high CO2 emissions.

As an indication of the range of rates, drivers of cars with CO2 emissions not exceeding 50g/km now pay tax on a benefit of just 5% or 8% of the list price whilst drivers of cars with emissions of 210g/km or more are capped at a benefit rate of 37% of the list price.

As well as the taxable benefit on the employee, the employer will be liable to pay class 1A national insurance on the value of the benefit.

Company car fuel 

The tax cost of employer provided fuel has risen sharply in recent years. The fuel benefit is calculated by reference to the ‘appropriate percentage’ which is the percentage used for calculating the taxable benefit of the car itself. The appropriate percentage is then applied to a set figure, this figure is currently £22,100 but is reviewed each tax year.

This tax charge will apply if any private fuel is provided to the employee and is not fully reimbursed. Therefore if care is not taken a very high tax charge can arise even if only a very small amount of private fuel is provided. 

Advisory fuel rates

HMRC review and publish advisory fuel rates approximately every six months. These are the rates at which employers can reimburse business fuel costs to company car drivers tax-free. This allowance only applies to business travel so will not cover private mileage including home to work travel.

The current rates are as follows: 

Rates from March 2015-August 2015

Engine Size

 Petrol 

 LPG 

1400cc or less

11p

8p

1401cc to 2000cc  

13p

10p

Over 2000cc

20p

14p

 

Engine Size

 Diesel 

1600cc or less

9p

1601cc to 2000cc  

11p

Over 2000cc

14p

Rates from 1 September 2015

Engine Size

 Petrol 

 LPG 

1400cc or less

11p

7p

1401cc to 2000cc  

14p

9p

Over 2000cc

21p

14p

 

Engine Size

 Diesel 

1600cc or less

9p

1601cc to 2000cc  

11p

Over 2000cc

13p

Private cars used for work:

Drivers using their own cars for business travel, have recently seen a small rise in the level at which they may be reimbursed tax-free by their employers. The rates current rates are 45p for the first 10,000 miles and 25p for additional business miles.

To find out more about benefits in kind and company car schemes please do not hesitate to contact a taylorcocks member of staff here.