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Tax Factor

01 February 2013

Company Cars – Are they worth the benefit?

A company car is a benefit in kind and is therefore taxable on an employee, provided the employee earns over £8,500 per annum (or generally, if the individual is a director of the company).

 

The benefit must be recorded on form P11D. The cash equivalent of the car is calculated and taxed at the employee’s highest rate of tax, generally by taxing the individual through the operation of PAYE on the benefit. Employers are also liable to class 1A National Insurance based on the cash equivalent of the car, multiplied by 13.8%.

 

To calculate the cash equivalent of a car, the list price of the car and any accessories purchased are multiplied by a percentage based on the cars CO2 emissions, which have been summarised in the table below. The taxable value of the car can be reduced by a capital contribution towards the car by the employee of up to £5,000.

 

The government has announced that all CO2 emission bands will go up 1% in 2014, 2015 and 2016. Therefore in four years time, the CO2 percentage used to calculate a company car benefit for a car currently held by an employee will go up by at least 3% based on current proposals.

 

There is currently an additional 3% surcharge for diesel cars which is added onto the CO2 percentage when calculating a benefit. The surcharge is currently capped, and so until 2014/15 the maximum percentage applied to the cash equivalent of a car would be 35% and in 2015/16 it would be 37%. Drivers of diesel cars may benefit in the future as the surcharge is being abolished in 2016 which will bring diesel cars into parity with their petrol equivalent.


Car Fuel Benefit

The benefit in kind calculated in relation to provision of private fuel to employees is also based on the relevant CO2 percentages as listed in the table below. It is multiplied by a flat figure, currently £20,200. This is an increase on the previous multiplier of £18,800 which had been the set rate for a number of years. There has been a further commitment to increase the multiplier by 2% above the rate of inflation in 2013/14. The benefit in kind taxable on employees will therefore increase going forward for all cars apart from those with zero emissions.

 

Unless the employee fully reimburses the company for all private use, a fuel benefit applies. As the CO2 percentages increase, it is worth considering whether the fuel benefit outweighs the actual cost of private motoring, or whether in fact it would be cheaper for the employee to pay for their own fuel and just reclaim mileage costs at HMRC’s advisory rate for business journeys.

 

Is this helping the environment?

Incentives are being effectively withdrawn for employees to drive electric and low emission cars, as from April 2015, the five-year exemption for zero carbon and ultra low carbon emission vehicles will come to an end. The percentage for zero emission cars will become 9% and the special rules for cars with CO2 of 75g/km or less will be abolished leaving motorists with a benefit in kind based on a 13% CO2 charge from 2015/16.

 

So are company cars worthwhile?

Although the CO2 percentages are being increased year on year, resulting in corresponding increases in the taxable benefit in kind, there are also a greater number of low emission cars on the market. Having a small, low emission car as part of a remuneration package may still be worth considering and the perceived benefit to the employee may still outweigh the taxable benefit in kind.

 

CO2 emissions – Applicable percentages for calculating car benefits in kind

 

(g/km) 2012/13
%
2013/14
%
2014/15
%
2015/16
%
2016/17
%
 Zero  0  0  0 13 15
Up to 75
5
5 5
13 15
76 to 94
10 10 11 13 15
95 - 99
10
11
12
14
16
100 - 104
11 12 13 15 17
105 - 109
12 13 14 16 18
110 - 114
13 14 15 17 19
115 - 119
14 15 17 18 20
120
15
16
17
19
21
121 - 124
15 17 18 19 21
125 - 129
16 18 19 20
22
130 - 134
17 19 20 21
23
135 - 139
18 20 21 22 24
140 - 144
19 21 22 23 25
145 - 149
20 22 23 24
26
150 - 154
21 23 24 25
27
155 - 159
22 24 25 26 28
160 - 164
23 25 26 27 29
165 - 169
24 26 27 28 30
170 - 174
25 27 28 29 31
175 - 179
26 28 29 30 32
180 - 184
27 29 30 31 33
185 - 189
28 30 31 32 34
190 - 194
29 31 32 33 35
195 - 199
30 32 33 34 36
200 - 204
31 33 34 35 37
205 - 209
32 34
35 36 37
 210 - 214
 33 35 
 35 37
37
 215 - 219
34
35 
35 37
37
 220 - 224
 35 35 
35 37
37
 225 and above
 35 35 
 35 37 37

 

 

If you would like advice on the tax impact of benefits on employees, remuneration packages, or human resource matters please contact your local Wilkins Kennedy advisors.

 

Emma Lawrence
Corporate Tax Assistant

Romsey & Winchester

t:    01794 515441/01962 852263

e: emma.lawrence@wilkinskennedy.com

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