Company cars

IAIN BETHUNE CA FCMA

Since April 2002 there has been a major change in the calculation of the benefit in kind in respect of company cars.

From that date the annual business mileage driven is irrelevant and the reduction previously offered on the age of the car is scrapped.

Carbon dioxide emission is now the unit of measure.

The starting point in the calculation is the manufacturer's list price of the car when new ( plus any extras fitted and less any capital contribution toward the cost by the employee). No matter that the car was bought at a discount the manufacturer's list price is to be used.

A percentage of that list price, based on the carbon dioxide emission is the benefit in kind valuation upon which tax will be charged.

The percentage is a minimum of 15% and a maximum of 35% .

Car manufactures now provide carbon dioxide emission figures for the various models produced.

Example : Car list price is £ 18,000

Suppose the declared CO2 emission figure is 184 grams per kilometre driven.

Round down to 180 ( for tax purposes you round down to 5 or 0.)

Look up official tables for 180 in tax year 2002/03 - percentage is 18.

Car benefit is 18% of £ 18,000 = £ 3,240

Note that in the subsequent two years the Inland Revenue have advised of a decrease in the minimum level of 165 in 2002/03 to 155 in 2003/04 and to 145 in 2004/05 which results in the calculated benefit shown above increasing in 03/04 to £ 3,600 and in 04/05 to £ 3,960. So if you stick with the same car your benefit increases and you pay more tax.

If you are a standard rate taxpayer driving the car above then the tax payable is as follows :

02/03 £ 712.08 03/04 £ 792.00 04/05 £ 871.20 being an increase of 22% over two years.

Other points :

Diesel cars carry a supplement of 3% over petrol engined cars. So if the car in the example above was a diesel then the calculated percentage of 18 is increased to 21 and the benefit in 02/03 is £ 3,780 resulting in the standard taxpayer paying £ 831.60 compared to the petrol driver paying £ 712.08.

Vehicles first registered before 1st January 1998 will be taxed on engine size as under :

Engine size (cc) % of car's price charged to tax

Up to 1400 15

1401 to 2000 22

2001 and more 32

Please call us if there are points in this legislation which are unclear to you.

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