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Company Cars
Although the taxable benefit for company car drivers continues to be calculated, in most cases,
as a percentage of list price when new, the discounts for older cars and for those covering higher
business mileages have been abolished.
With effect from 6 April 2002, the only measure in ascertaining the taxable benefit percentage is
the car’s carbon dioxide emissions, measured in grams per kilometre. That figure can be found,
for cars registered on or after 1 January 1998:-
For those cars running on petrol and emitting less than 170 g/km of carbon dioxide the minimum
taxable percentage is 15%. This rises to 35% for petrol cars with emissions of 265 g/km, or more.
For diesel powered cars there is a 3% "supplement", but the maximum remains 35%.
Once you have ascertained your car’s CO2 emissions rate, you can find your taxable percentage
for 2002/03 using the following table:
CO2 in g/km |
Taxable % |
CO2 in g/km |
Taxable % |
CO2 in g/km |
Taxable % |
Petrol |
Diesel |
Petrol |
Diesel |
Petrol |
Diesel |
Less than 170 |
15% |
18% |
200 to 204.9 |
22% |
25% |
235 to 239.9 |
29% |
32% |
170 to 174.9 |
16% |
19% |
205 to 209.9 |
23% |
26% |
240 to 244.9 |
30% |
33% |
175 to 179.9 |
17% |
20% |
210 to 214.9 |
24% |
27% |
245 to 249.9 |
31% |
34% |
180 to 184.9 |
18% |
21% |
215 to 219.9 |
25% |
28% |
250 to 254.9 |
32% |
35% |
185 to 189.9 |
19% |
22% |
220 to 224.9 |
26% |
29% |
255 to 259.9 |
33% |
35% |
190 to 194.9 |
20% |
23% |
225 to 229.9 |
27% |
30% |
260 to 264.9 |
34% |
35% |
195 to 199.9 |
21% |
24% |
230 to 234.9 |
28% |
31% |
265 and over |
35% |
35% |
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Reliable emissions data is not widely available for cars registered before 1 January 1998. For
them, the following taxable percentages apply, regardless of fuel type:
Engine capacity |
% taxable |
Up to 1400cc |
15% |
1401 - 2000cc |
22% |
Over 2000cc |
32% |
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So, will you be a winner or a loser under the new system? Typically, the new system will reward
those driving newer cars, with lower emissions. It will result in an increased tax liability for those
driving older cars, and in particular those covering a high annual business mileage.
If you drive a typical car, using petrol and costing – say – £17,000, with CO2 emissions of
202 g/km, your tax bill as a 40% taxpayer in 2001/02 was:
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Business mileage low to nil |
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tax £2,380, or £198.33 per month |
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Business mileage 40,000 |
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tax £1,020, or £85 per month |
For 2002/03, the tax bill will be the same regardless of the business mileage, at £1,496 for
the year, or £124.67 per month – a saving of £73.66 per month on the 'perk' car; an additional
£39.67 per month to pay for the business user
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Some features of the tax system remain – notably the special rules for contributions by
employees, for more valuable classic cars and the flat rate charge for the private use of company
vans.
Looking beyond 2002/03
The tax cost is also set to rise in 2003 and again in 2004, as the point at which the taxable
percentage rises above 15% will be reduced for 2003/04 (from 169 to 159 g/km) and for 2004/05
(from 159 to 149 g/km). The equivalent tax figures for our example are:
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2003/4 |
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£1,632, or £136 per month |
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2004/5 |
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£1,768, or £147.33 per month |
Alternatives
There are alternatives to running a company car. To decide whether you might be better off
buying a car yourself and claiming for business mileage at the statutory rates requires a detailed
calculation of your costs and savings, as well as an understanding of the non-cash benefits of
running a company car – seek professional advice. Or consider running a company van instead
– the maximum tax liability for someone running a company van in 2002/03 is £200 - £16.67 per
month. You might also consider alternatively fuelled cars, which may reduce the minimum charge
to less than 15%.
Employers
Running a fleet of company cars has advantages and disadvantages. You might run a simple
comparison of costs under the new scheme, but it would be better to rerun your cost/benefit
analysis to reflect non-tax considerations. One thing is likely, however – that the new system will
increase the cost of high mileage fleets.
Just as employees pay income tax at rates of up to 40% on the taxable car benefit, so employers
pay Class 1A national insurance contributions – at 11.8% for 2002/03.
Car fuel benefits for 2002/03
Engine size |
Petrol |
Diesel |
Up to 1400cc |
£2,240 |
£2,850 |
1401 - 2000cc |
£2,850 |
£2,850 |
Over 2000cc |
£4,200 |
£4,200 |
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The scale rates are to be replaced, with effect from 6 April 2003, with an emissions based charge on the provision by employers of fuel for private mileage.
Mileage rates
The rates for the maximum tax free mileage allowances for 2002/03 are as follows:
First 10,000 miles |
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40p per mile |
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Over 10,000 miles |
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25p per mile |
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VAT scale charge for quarters commencing on or after 1 May 2002
Engine size |
Petrol |
Diesel |
Up to 1400cc |
£33.65 |
£31.57 |
1401 - 2000cc |
£42.59 |
£31.57 |
Over 2000cc |
£62.85 |
£39.91 |
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