Company Cars - Green or Mean?
It is now some time since the government changed the company car taxation rules to move away from using business mileage as a basis for the calculations. Calculations on the basis of carbon dioxide emissions is just one of the measures brought in with a view to protecting the environment and enhancing the government's green credentials.
In this edition's Tax Talk, we take a look at the environmental slant to the company car rules and contrast this with the opposite effect encouraged by the rules relating to commercial vehicles.
Company Cars - the basic rules
The car tax benefit rules favour cheaper, fuel efficient vehicles by basing the tax charge on a combination of the cost and carbon dioxide emissions. The benefit charge ranges from 10% of the car's list (i.e. new) price for a car with low emissions to a maximum of 35% for the thirsty gas-guzzlers.
Similarly, the fuel benefit is also based on emissions, the same percentage figure (between 10% and 35%) is applied to a notional figure of £14,400.
Example:
Mitsubishi Shogun - list price of £20,449
CO2 emissions level of 278g per kilometre (35%)
The annual taxable benefit is
£20,499 x 35% = £7,174
Tax due for a 40% taxpayer
(£7,174 x 40%) £2,869
Tax on fuel benefit
(£14,400 x 35% @ 40%) £2,016
Total tax £4,885
'Green' cars
There are special rules for environmentally friendly cars:
- Electric cars are subject to a straight 9% benefit percentage.
- Hybrid electric cars follow the normal rules but receive a percentage discount of three percent, but this discount will be removed in 2011.
- • Cars which run wholly on gas or a mixture of gas and petrol receive a discount of two percent, but again this discount will be removed in 2011.
Other environmental measures
Employers receive a 100% first year allowance for low emission cars (120g CO2)
Commercial vehicles
Prior to 6 April 2007 the tax benefit for the private use of a van was just £500 including the provision of private fuel. Consequently, a higher rate taxpayer would pay tax of just £200 annually.
One of the problems with this was that the "van" was often a large 4x4 type vehicle (a double cab pick-up).
The government noticed the tax charge was a little on the low side for this sort of vehicle and has increased the charge significantly. Consequently, as from 6 April 2007, the tax benefit is now £3,000 plus £500 for the private fuel. A higher rate taxpayer pays tax of £1,400 annually for the provision, running costs and fuel of a vehicle like the one illustrated here.
However, when you compare this to the tax charge of £4,885 for the car in the example at the start of this article, it is obvious that the tax charge for a double cab pick-up is still much lower. There is also the advantage that the employer can recover the VAT on the purchase of a commercial vehicle.
The rules are hardly environmentally sound though. Given that the "van" needs a load bearing capacity of 1 tonne to qualify as a van, it is inevitably going to be a large vehicle using a lot of fuel. However, I am sure taxpayers will continue to exploit the rules relating to vans as long as the inconsistencies in the benefit rules persist.
If you would like to learn more about company cars for tax purposes, please call Charles Green on 020 8652 2450 .
If you would like to learn more about company cars for tax purposes, please call Charles Green on 020 8652 2450.
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