Tax Factor
10 November 2009
Company car update
For individuals
The taxable benefit of a car or van, and fuel, provided by an employer to an employee, is calculated as a percentage of the list price depending on industry agreed carbon dioxide emissions for the particular make and type of car.
When considering either the new top rate of income tax for individuals from April 2010, or the pension anti-forestalling rules, it should be noted that the taxable benefit counts towards the individual's total income.
If you are considering changing your company car it is worthwhile checking the carbon dioxide emission rating of the chosen model and the resulting taxable car benefit as choosing a low emission or "hybrid" car can lead to significant tax savings.
Tax savings may also arise by choosing to pay personally for all fuel and then charging the employer an agreed fuel rate for business mileage only. If the rate charged follows the HMRC issued guidelines then no liability to income tax or Class 1 NIC should arise, and the charges will be accepted for VAT purposes.
The taxable benefit of a company provided van which is available for private use is £3,000 regardless of the age of the van. However, the taxable benefit of a company provided van can be reduced to Nil if the van is made available to the employee mainly for business travel and the terms on which it is made available prohibit its private use, otherwise than for the purposes of "ordinary commuting".
Whenever a new car or van is acquired it is important to consider whether it should be owned personally, or by a company, especially if the benefit is taxable at the 50% rate after 5 April 2010.
For businesses
As from April 2009, the old rules on 'expensive' cars disappeared from both the capital allowance regime and leased car calculations for tax purposes. The new rules are, not surprisingly, based on CO2 emissions and the tax position for businesses can therefore also be greatly affected by the choice of car.
If a car is purchased which has a CO2 emission of 160g/km or below, then it is added to the general pool and eligible for capital allowances at the current writing down allowance applicable to that pool of 20% per annum.
However, if it has a CO2 emission of 161g/km or more, then it is added to the special rate pool with writing down allowance of only 10% per annum.
Please note that annual investment allowances and first year allowances still aren't available on cars, and that balancing allowances / charges will no longer be available.
Leased cars with emissions of 160g/km or below will have no element of their leasing cost disallowed, whilst cars with emissions of 161g/km or above will result in a flat 15% of the finance rental element of leasing costs disallowed.
One impact of this is that the percentage of finance rental costs that are disallowed is now capped at 15%. This means that vehicles with a list price over £17,150 will have a smaller percentage of finance lease payments disallowed under the new rules than under the old.
