The Quick Guide Series:

Back to Quick Guide introduction

COMPANY CARS

From 6 April 2002 the charge on the benefit of a company car is graduated according to carbon dioxide (CO²) emissions.

This tax charge replaces the previous scheme which included reductions for business mileage (including those for second cars) and for older cars. These reductions no longer apply.

Charges

1. Petrol engines
For cars with a petrol engine with an approved CO² emissions figure, the charge will build up from 15% of the car's list price in 1% steps, dependent upon the level of emissions, in accordance with the following table:

• The exact CO² figure is rounded down to the nearest 5 g/km

• The price of the car, for tax purposes, is the UK list price of the car on registration plus car tax, VAT, delivery charges and relevant accessories.

For example:

2007/08 car benefit charge for petrol car with approved CO² emission factor of 207 with list price of £18,000 is calculated as £18,000 x 28% = £5,040

2. Diesel engines
For cars with diesel engines the following supplements will be added:

• Diesel cars achieving the clean level of Euro IV standard emissions will not be subject to the above diesel supplements to 2005/06. Thereafter the exemption only applies to compliant cars registered before 31 December 2005.

For example:

2007/08 car benefit charge for diesel car (Euro IV not achieved) with approved CO² emission factor of 172 and list price of £15,000 is calculated as £15,000 x (21+3)% = £3,600

3. No approved CO² emissions
Cars with no approved CO² emissions and cars registered before 1 January 1998 are taxed according to engine size as follows:

Fuel Benefit

To calculate the benefit charge the CO² percentage figure is multiplied against a set figure. For 2007/08 (unchanged from 2006/07) the set figure is £14,400 (e.g. the 2007/08 fuel charge for a car with CO² emissions of 225g/km is 14,400 x 32% = £4,608).

There is a 3% supplement for diesel which applies in a similar way to car benefit.

These standard charges are subject to Income Tax at the lower, basic or higher rates, depending upon the employee's overall liability for the year. The tax due is usually collected under the PAYE system via an adjustment to the employee's code number.

Fuel only mileage rates

Where employees are reimbursed for the cost of fuel used for business travel in their company cars, the following 'advisory fuel rates' may be used without triggering a tax or national insurance liability.

The rates from 1 February 2007 are: (previous rates in brackets)

Business use of an Employee's own Car

Many employees are reimbursed for the business use of their own car. The maximum amount of mileage allowance that can be received without paying tax is as follows:

If more than the above 'approved mileage allowance payment' (AMAP) is received, tax is payable on the excess.

Tax-Free Benefits

1. Car Parking
The provision of a car parking space either at or near an employee's place of work is not an assessable benefit.

2. Pool Cars
There is no tax charge for using a pool car. (A pool car is defined as one where private use is 'merely incidental' to business use, where it is not normally used by any single employee to the exclusion of others, and where it is not normally kept overnight at or near an employee's home.)

3. 'Lower-paid' Employees
The provision of a car for an employee (not a director) who is paid at a rate of less than £8,500 per year including the value of all benefits & reimbursed expenses does not attract any charge to car or fuel benefit.

4. Vans
For 2006/07 the taxable benefit for private use of a
company van including fuel is £500 (£350 for vans over 4 years old). From 6 April 2007 the scale charge has increased to £3,000 with an additional £500 charge for private fuel.

An exemption from the benefit is available if an employee is prohibited from using the van privately, apart from ordinary commuting journeys, provided the employee satisfies these restricted conditions and the van is mainly used for business travel.

Reporting Details

Provision of company cars and fuel benefits must be reported on a form P11D/P9D for directors and relevant employees.

Mileage payments in excess of the approved allowances must also be reported on form P11D/P9D. The individual then makes a claim for the approved allowance by completing the appropriate section on his or her tax return.

Please note: This guide is intended to provide basic information only. Where specific advice is required, we recommend that you seek proper professional help; either from this firm or other suitably qualified person or practice.