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. Please do not hesitate to contact us if you require further information.
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 table for 2012/13 is set out below.
| 2012/13 | |
| CO2 emissions in grams per kilometre | % of car’s price taxed |
| 0 | 0 |
| 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) |
Examples
Jane was provided with a new company car, a Mercedes CLK 430, on 6 April 2011. The CO2 emissions are 281 grams per kilometre. Jane regularly drives 20,000 business miles each year.
Jane’s benefit in 2012/13 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 2012. 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 2012/13 is: £21,000 x 27% = £5,670
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.ukThese 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 2012/13).
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 too are taxed according to engine size.
| Engine size (cc) | % of list price charged to tax |
|---|---|
| 0 – 1400 | 15% |
| 1401 – 2000 | 25% |
| over 2000 | 35% |
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 £20,200 for 2012/13. 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 fuel 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.
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 – 2000cc | Over 2000cc | |
| From 1 June 2012 | 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 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.
How we can help
We can provide advice on such matters as:
- whether a car should be provided to an employee or a private car used for business mileage
- whether employee contributions are tax efficient
- whether private fuel should be supplied with the car.
Please contact us for more detailed advice.