Cars and Vans: The Next Chapter

It is over two years since the current tax rules for company cars were introduced. When the regime began in April 2002, the minimum 15% charge applied for 2002/03 to cars with CO2 emissions not exceeding 165 grams per kilometre (gm/km). The qualifying level of CO2 emissions for the 15% charge is being gradually reduced so that the starting point from next April will be 140 gm/km.

For example an employee with a company car having a list price of, say, £28,000 and emissions of 185gm/km has seen their benefit in kind rise from £5,320 in 2002/03 to £6,720 from next April. For a 40% taxpayer this means an increase in tax of over £500 a year.

The potential savings associated with diesel cars should not be overlooked by those seeking to reduce their benefit. A 3% supplement is added to an employee’s benefit unless the car is Euro IV compliant. More and more diesel cars now satisfy this standard.

When submitting the P46(car) for such cars the fuel type should be entered as ‘L’ not ‘D’.

A further benefit of ‘staying green’ is that businesses buying cars with emissions not exceeding 120gm/km may qualify for a 100% write-off of the cost in year one. Go to www.comcar.co.uk to see the list of cars qualifying under this heading and those that are Euro IV compliant.

As far as employer provided vans are concerned the government has finally decided what the new rules will be. We provide a brief summary of the changes below.

Until 5 April 2005
Nothing changes and the flat rate charge of £500 (or £350 for older vans) continues. The charge applies where an employee has use of a van and the charge includes private fuel.

From 6 April 2005
The charge is reduced to nil if there is ‘restricted private use’. It remains at £500 (or £350) otherwise. Restricted private use means that the van is primarily provided for business use and the private use is predominantly commuting from home to work.

Advance notice: from 6 April 2007
The rules will be amended further. Unless there is restricted private use, the charge will be a flat rate of £3,000 plus £500 for private fuel.

It will therefore be crucial, in order to ensure that no tax charge arises, that:

  • a given vehicle qualifies as a van rather than a car and
  • the van is available for restricted private use.
We would be happy to advise on any aspect of the rules.