16 March 2005 Budget Report Budget highlights Capital taxes Duties Value added tax National insurance Business tax and investment incentives Income tax and personal savings Company cars Other measures announced 2005/06 tax calendar

Company Cars

The system for taxing those who use company cars has remained fundamentally unchanged for some years, save for stepped changes in the emissions thresholds. The basis of the charge is to tax a figure calculated by multiplying the car's list price by an emissions-based percentage, with a 3% surcharge on diesel powered cars.

The tax payable on your company car is governed by four factors:

• the list price of the car, on the day before it was first registered, plus certain accessories,
• the rate at which the car emits carbon dioxide (CO₂),
• the fuel type,
  (for most types of car, this is all the information you need to work out the taxable benefit)
• your highest rate of income tax.

You can find your 2005/06 taxable percentage of the list price using the following table:

How to find out how much CO₂ your company car emits – see:

• the car’s V5 registration document
• your dealer
• the data pages of car magazines (current models)
• the Vehicle Certification Agency – www.vca.gov.uk
• the website of the Society of Motor Manufacturers and Traders - www.smmt.co.uk/co2/co2search.cfm

Reliable emissions data is not widely available for cars registered before 1 January 1998. For them, the following taxable percentages of the list price apply, regardless of fuel type.

Cleaner diesels

When the current system was introduced, it included a discount of 3% for diesel powered cars compliant with the Euro IV emissions standards, to encourage earlier take-up of 'cleaner diesels' and effectively cancelling the 3% surcharge on all diesel company cars. The Government is satisfied with the take-up of cars which are Euro IV compliant, and the 3% discount will therefore be withdrawn from 6 April 2006 for cars first registered after 31 December 2005. It will, however, continue to be given for Euro IV compliant cars registered up to and including that date.

Examples

Assuming emissions of 158g/km of CO₂ and a list price of £18,000, the taxable benefit for three differently-fuelled cars for 2006/07 would be:

• Petrol, £18,000 x 18% = £3,240 taxable benefit.
  Maximum tax (40%) = £1,296


• Diesel, Euro IV compliant, registered 1 September 2005 £18,000 x 18% = £3,240 taxable benefit.
  Maximum tax (40%) = £1,296


• Diesel, Euro IV compliant, registered 5 Jan 2006 £18,000 x 21% = £3,780 taxable benefit.
  Maximum tax (40%) = £1,512

The discounts for certain 'cleaner' cars continue as before for 2005/06, but will be simplified for 2006/7.

Mileage rates

Mileage rates, for business travel, paid at the following rates will not attract a charge to tax or NICs:

HM Revenue & Customs advisory rates can be applied as a tax-free maximum rate for employees claiming for petrol used on business journeys and for employees re-imbursing their employers with the cost of petrol used for private journeys. HM Revenue & Customs will consider claims for a higher maximum rate, if it can be demonstrated that it is necessary for an employee to use a car with higher than average fuel costs.

Car fuel benefits

If the employee pays for the full cost of all fuel for private journeys (usually including home to work) there will be no car fuel benefit. In all other cases the full tax charge will be due.

The taxable car fuel benefit for 2005/06 is calculated by multiplying £14,400 by the same percentage as applies (or would apply) for the car benefit.

Example:

A company car driver has a car which, on the day before it was first registered, had a list price of £18,000. It runs on petrol, and emits 182 g/km of CO₂.

If we assume the driver pays tax at 40%, the annual tax bill on the car is: £18,000 x 23% x 40% = £1,656.

If the employer provides any fuel used for private journeys and is not re-imbursed for the cost, the 2005/06 tax bill for the fuel is: £14,400 x 23% x 40% = £1,324.80.

VAT on scale charge for quarters commencing on or after 1 May 2005

Company vans

From 6 April 2005 there will be no taxable benefit where employees have to take their company vans home and are not allowed any other private use. Otherwise, the taxable benefit for the private use of a company van and fuel, if supplied, is £500 or £350 (vans less or more than four years old) per annum, until 5 April 2007.

With effect from 6 April 2007 the taxable benefit for the unrestricted use of company vans will be £3,000 (with no reduction for older vans) plus a further £500 of taxable benefit if fuel is provided by the employer for private travel.

The maximum tax payable on the use of a company van will therefore increase from April 2007 from £200 to £1,400 p.a., and the employer's Class1A NIC payable will increase from £64 to £448 p.a.

Business:	Business Start-Up | Business General | Limited Companies Partnerships | IR35 | Business Management | PAYE & NI | VAT
Personal:	Introduction to the Tax System | Planning Aspects | Home Aspects Pensions | Aspects of Investments and Investing | VCT & EIS
Tax:	Budget Report | Tax Guide | Financial Planning Guide Tax Calendar | IR35 | PAYE & NI | VAT | Year End Tax Planning