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Company cars- A summary of tax rules

This summary focuses on company car tax rules and how tax legislation is being used to encourage businesses to acquire more environmentally-friendly vehicles.

Car benefit charge

The provision of a company car is normally a taxable benefit for an employee or director. The company car benefit charge for a full year is calculated by multiplying the price of the car (in most cases, its list price plus accessories less capital contributions) by the 'appropriate percentage', based on the level of CO2 emissions. The benefit charge is then subject to tax at the effective tax rate of each individual. Employers pay Class 1A national insurance contributions (NICs) on the benefit at 13.8%.   

The annual taxable value of the benefit is a maximum of 35% of the list price of the car when first registered, dependent upon CO2 emissions.

The list price includes the full cost of the car, car tax (if applicable), VAT and delivery charges. There is no cap on the list price of the car for calculating the benefit. The list price of most accessories must be included whether fitted when new or subsequently.

Diesel cars are currently subject to a 3% supplement, subject to the 35% cap.  Cars that are propelled solely by electricity do not have to pay tax on the benefit.

Fuel benefit charge

Where the employer also pays for any fuel used privately by the employee, there is an additional benefit charge applied to a standard value of £21,100. This charge is based on the same CO2 car benefit percentages.  There is no fuel benefit charge for vehicles propelled solely by electricity.

Employee contributions

Where the employee is required as a condition of the car being made available to pay for the private use of a car, the value of the benefit is reduced accordingly on a pound for pound basis.

By contrast it is ‘all or nothing’ for the fuel benefit charge, which means the full tax charge on the value of the benefit is due unless the employee reimburses all private fuel costs.

HMRC publishes advisory fuel-only rates which will be accepted either for employers reimbursing employees for the cost of fuel for business mileage, or for employees reimbursing employers for the cost of fuel for private mileage in a company car.

 

Advisory fuel-only mileage rates from 1 September 2013

 

Engine Capacity

Petrol

LPG

Up to 1400cc

15p

10p

1401cc – 2000cc

18p

11p

Over 2000cc

26p

16p

 

Engine Capacity

Diesel

 

1600cc or less

12p

 

1601cc – 2000cc

15p

 

Over 2000cc

18p

 

Company vans

The taxable benefit for the unrestricted use of company vans is £3,000 plus a further £564 of taxable benefit if fuel is provided by the employer for private travel.  Home to work travel in a company van is not deemed to be private use.

Tax payable

Income tax at the basic, higher or additional rate is chargeable on the car and/or fuel benefit depending on the employee's rate of pay.  The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code, following the details being declared to HMRC on forms P11D and P11D(b).

Business use of an employee's own car

A statutory system of tax and NIC free mileage rates applies for business journeys in an employee’s car or van:

On the first 10,000 miles in the tax year                     45p per mile

On each additional mile above this                              25p per mile

If an employee travelling on business carries fellow employees as passengers, they may be reimbursed a further 5p per passenger tax free provided it is a business journey in respect of the passengers. No claim can be made if the employer does not pay passenger payments.

Tax-free benefits

Car parking

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

Pool cars

There is no tax for using a pool car. This is one where private use is merely incidental to the business use, and it is not normally used by one employee to the exclusion of all others. Please note that a pool car must not normally be kept overnight at or near an employee's home.

‘Lower paid’ employees

The provision of a car for an employee other than a director who is paid at a rate below £8,500 per year (including the value of benefits) does not attract any charge to income tax. Nor is there any charge on fuel for private use provided to such employees.

Compliance matters

Accurate and up-to-date records of all business mileage undertaken in private vehicles must be maintained at all times. In the case of company cars, all fuel receipts should be retained as proof of actual costs incurred. Employers should maintain mileage records for ‘pool cars’ for PAYE inspection purposes. 

If assistance is required with decisions over the tax implications of the acquisition of company cars, please contact us. Rothmans also have a helpful video explaining more, click HERE to view.

Andrew Perriam

Partner

Chandlers Ford

 

Company Car Tax Rules
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