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Employer Provided Cars

The current regime for taxing employer provided cars (commonly referred to as company cars) is intended:

• to encourage manufacturers to produce cars which are more environmentally friendly and
• to give employee drivers and their employers a tax incentive to choose more fuel-efficient and environmentally friendly vehicles.

We set out below the main areas of importance:

The Rules

 

Employer provided cars are taxed by reference to the list price of the car but graduated according to the level of its carbon dioxide (CO₂) emissions.

Percentage charges

The percentage charge for the majority of cars is between 10% and 35%. The emissions tables for 2011/12 is set out below:

 

2011/12
CO2 emissions in grams per kilometre	% of car’s price taxed
0	0
1 to 75*	5
76 to 120*	10
121 to 125	15
130	16
135	17
140	18
145	19
150	20
155	21
160	22
165	23
170	24
175	25
180	26
185	27
190	28
195	29
200	30
205	31
210	32
215	33
220	34
225 and above	35

 

*Applicable from 6 April 2010 - 5 April 2015.

 

See the section on "Proposed Percentage Changes for 2012/13" if you are planning to change car.

Examples

Jane was provided with a new company car, a Mercedes CLK 430, on 6 April 2010. The list price is £50,000. The CO₂ emissions are 281 grams per kilometre. Jane regularly drives 20,000 business miles each year.

 

Jane’s benefit in kind in 2011/12 and later years will be £50,000 x 35% = £17,500

 

Phil has a company car, a BMW 318i, which had a list price of £21,000 when it was provided new on 6 April 2011. Phil does fewer than 1,000 business miles each year. The CO₂ emissions are 184 grams per kilometre. Note: The CO₂ emissions are rounded down to the nearest 5 grams per kilometre - in this case 180.

 

Phil's benefit for 2011/12 is: £21,000 x 26% = £5,460

 

If Phil continues to drive the same car his benefit will increase to 27% of list price for 2012/13.

Diesels

Diesel cars emit less CO₂ than petrol cars and so would be taxed on a lower percentage of the list price than an equivalent petrol car. However, diesel cars emit greater quantities of air pollutants than petrol cars and therefore a supplement of 3% of the list price generally applies to diesel cars. For example, a diesel car that would give rise to a 22% charge on the basis of its CO₂ emissions will instead be charged at 25%. The maximum charge for diesel is capped at 35%.

Obtaining emissions data

The Vehicle Certification Agency produces a free guide to the fuel consumption and emissions figures of all new cars. It is available on the internet at www.vcacarfueldata.org.uk. These figures are not however necessarily the definitive  figures for a particular car. For all cars first registered from 1 March 2001 onwards, the definitive CO₂ emissions figure is recorded on the Vehicle Registration Document (V5).

The list price

• The list price of a car is the price when it was first registered including delivery, VAT and any accessories provided with the car. Accessories subsequently made available are also included (unless they have a list price of less than £100)
• Employee capital contributions up to £5,000 reduce the list price.

Employer's Class 1A National Insurance Contributions

The benefit chargeable to tax on the employee is also used to compute the employer’s liability to Class 1A (the rate is 13.8% for 2011/12).

The Exceptions

Imports

Some cars registered after 1 January 1998 may have no approved CO₂ emissions figure, perhaps if they were imported from outside the EC. They are taxed according to engine size:

 

Engine size (cc)	% of list price charged to tax
0 - 1400	15%
1401 - 2000	25%
over 2000	35%

Proposed percentage charges from 2012/13

 

From 6 April 2012 the CO₂ emissions bands used to work out the taxable benefit for an employee who has the use of a company car will be shifted down by 5g CO₂ per km. This means that a car with 120g CO₂ per km will attract a 15% charge. In addition, the current graduated table of company car tax bands will be extended down to a 10% band, as follows:

 

2012/13
CO2 emissions in grams per kilometre	% of car’s price taxed
75 or below	5
76 - 99	10
100 - 104	11
105 - 109	12
110 -114	13
115 - 119	14
120	15
125	16
130	17
For every additional 5g thereafter add 1%
220 and above	35 (max)

Private Fuel

 

There is a further tax charge where a company car user is supplied with or allowed to claim reimbursement for fuel for private journeys.

 

The fuel scale charge is based on the same percentage used to calculate the car benefit. This is applied to a set figure which is £18,800 for 2011/12. As with the car benefit, the fuel benefit chargeable to tax on the employee is used to compute the employer’s liability to Class 1A. The combined effect of the charges makes the provision of free fuel a tax inefficient means of remuneration unless there is high private mileage.

 

The benefit is proportionately reduced if private petrol is not provided for part of the year. So taking action now to stop providing free fuel will have an immediate impact on the fuel benefit chargeable to tax and NIC.

 

Please note that if free fuel is provided later in the same tax year there will be a full year's charge.

Business Fuel

 

No charge applies where the employee is solely reimbursed for fuel for business travel.

 

HM Revenue and Customs (HMRC) have published guidelines on fuel only mileage rates for employer provided cars. The advisory rates are not binding and an employer may be able to agree higher rates with HMRC via a dispensation, perhaps where employees need to use particular types of car such as 4x4s to cover rough terrain. Employers can adopt the rates in the following table but may pay lower rates if they choose.

 

	PETROL			DIESEL
	1400cc or less	1401 to 2000cc	Over 2000cc	1600cc or less	1601cc to 2000cc	Over 2000cc
From 1 December 2010 to 28 February 2011	13p	15p	21p	12p	12p	15p
From 1 March to 31 May 2011	14p	16p	23p	13p	13p	16p
From 1 June 2011 onwards	15p	18p	26p	12p	15p	18p

 

Employees' Use of Own Car

 

There is also a statutory system of tax and NIC free mileage rates for business journeys in employees' own vehicles.

 

The statutory rates from 6 April 2011 are:

 

	Rate per mile
Up to 10,000 miles	45p
Over 10,000 miles	25p

 

Employers can pay up to the statutory amount without generating a tax or NIC charge. Payments made by employers are referred to as ‘mileage allowance payments’. Where employers pay less than the statutory rate (or make no payment at all) employees can claim tax relief on the difference between any payment received and the statutory rate.

 

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For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

 

Updated July 2011

© 2012 McAllen and Co | Employer Provided Cars

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