On 6 April this year the new taxation regulations relating to company cars came into force, such regulations having been announced some time ago by the Chancellor of the Exchequer. The new regulations represent a fundamental change in the way in which employees are assessed on the benefit of having a company car and yet it is surprising how little is known about these regulations.
Many company car drivers will be paying more tax from
The old rules
Under the old rules an employee who was provided with a company car was taxed according to the list price of the car. The more expensive the car, the more tax was payable. However, the amount of tax paid was reduced in two ways. The greater the business mileage the less tax was payable. If the car was more than four years old less tax was payable.
The new rules
The new rules are based on the value of the car and its carbon dioxide emissions (CO2). The greater the emissions the more tax is payable. No account is now taken of the business mileage driven or the age of the car.
The reasoning behind the new rules is to encourage companies to use cars which are environmentally friendly and more fuel efficient.
Set out below are the new emission rates for the next three tax years. Tax is charged on a percentage of the price of the car and this percentage will vary according to the level of the car’s CO2 emissions measured in grams per kilometre (g/km).
CO2 emissions in g/km % of car’s price
2002/03 2003/04 2004/05
165 155 145 15
170 160 150 16
175 165 155 17
180 170 160 18
185 175 165 19
190 180 170 20
195 185 175 21
200 190 180 22
205 195 185 23
210 200 190 24
215 205 195 25
220 210 200 26
225 215 205 27
230 220 210 28
235 225 215 29
240 230 220 30
245 235 225 31
250 240 230 32
255 245 235 33
260 250 240 34
265 255 245 35 (max)
For cars not having a CO2 figure corresponding exactly to one above, round down to the nearest 5g/km.
The following example illustrates the difference in tax payable between 2001/02 and 2002/03.
An employee was provided with a new company car on
The tax is based on 35% of the list price of the
car. However, because the business
mileage is more than 18,000 miles in the year, this percentage is reduced to
15%. Therefore the taxable benefit in
£45,000 x 15% = £6,750.
The tax is based on the list price of the car and its CO2 emissions. In this example the g/km is greater than 265 and so the percentage will be the maximum of 35%. There is no reduction for the number of business miles driven so the taxable benefit in kind is £45,000 x 35% = £15,750.
From the above it will be seen that the taxable benefit has increased by £9,000!
The taxable benefit will remain the same for 2003/04 and 2004/05.
Now take the situation of an employee who does few business miles and whose car is cheaper and has lower CO2 emissions.
This employee was provided with a new company car on
As the employee drives less than 2,500 business miles a year there is no reduction in the percentage of list price, which is 35%. The taxable benefit is therefore £25,000 x 35% = £8,750
From the chart above it will be seen that the percentage of the car’s price is 22% as the g/km are 200. The taxable benefit is therefore £25,000 x 22% = £5,500.
This represents a reduction in taxable benefit of £3,250.
The taxable benefit will be £6,000 in 2003/04 and £6,500 in 2004/05.
The above examples illustrate the material effect the new tax regime will have on the employee.
You might imagine that the taxable benefit on a diesel car would be lower than on a petrol driven car, but you would be wrong. Whilst diesel cars have lower CO2 emissions than petrol driven cars, they do emit air pollutants in greater quantities and for this reason the percentages shown in the above table are each increased by 3%. As with petrol driven cars the top percentage is 35%.
There are a number of exceptions to the general rules
outlined above, which include imported cars and those cars which were first
Reducing the taxable benefit in kind
How then can you reduce the taxable benefit in kind? There are a number of ways, some of which are obvious:
1 Get a company car with a lower list price.
2 Get a company car with lower CO2 emissions.
3 Consider having your own car instead of a company car and charging the company for the business miles driven. There are various ways in which this can be achieved; for example you could buy the car from the company or the company could give the car to you.
My advice: From the examples given in this article you can see just what a difference the new rules can make to an employee’s taxable benefit in kind. Please consult me if you require advice about having your own car instead of a company car.
Please note this article does not cover the supply of fuel for private journeys, although this subject should also be considered when making a decision about your company car.
SMALL HOLDINGS OF SHARES
Do you have one or more shareholdings which are so small in size and value that they are actually more trouble than they are worth? If your answer is ‘yes’, consider giving the shares to charity under the Gift Aid scheme. The advantages to you are
· Less paperwork.
· The gift is treated neither as a gain nor a loss for capital gains tax purposes.
· The value of the shares at the date of the gift can be deducted from your income for income tax purposes.
· No stockbroker’s charges.
My advice: To arrange a gift of shares to charity either ring me and ask for a donation coupon or, if you have access to the internet, print off the coupon from www.ShareGift.co.uk.
THE POST MATCH INTERVIEW
‘At the end of the day’ (phrase to use when none other comes to mind).
‘Great vision’ (does not always make the obvious five yard pass).
‘A real work-horse with a great engine’ (runs around like a madman for 90 minutes but never achieves anything)
‘He’s more of a striker’ (a prima donna who is too lazy to help out in defence)
‘Good for the dressing room’ (a pain in the backside)
‘Has picked up a virus’ (dropped)
‘He’s still learning’ (at the moment he’s rubbish but there is hope)
‘A true veteran’ (we have the oxygen cylinders standing by)
‘Frank discussion’ (wholesale argument)
‘Very frank discussion’ (punch up)
Copyright Ó K P Bonney & Co 2002. All rights reserved. No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers. Disclaimer The publishers have taken all due care in the preparation of this publication. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publishers.
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