Cut your tax bills - go green

Recent government reports suggest that many businesses do not realise that the fuel efficiency (or otherwise) of a car may affect the amount of tax due from both employees and employers.

The list price of the vehicle and certain accessories is the starting point for working out the tax bill for employees who receive a company car. This can be very different to the price paid and can usually be obtained from the manufacturer.

The exhaust emissions of the car are then used to find a percentage (see table below), which is applied to the list price. This will give the value of the benefit of the car which will be taxed. The employer will also pay Class 1A NICs of 12.8% on the same amount.

Example

Charlie has a company car throughout 2006/07. It has a 2.5 litre diesel engine with CO2 emissions of 198 g/km and a list price of £26,000. The percentage from the table is 26%, plus the diesel supplement of 3%, so the benefit is £7,540 (£26,000 @ 29%). If Charlie is a higher rate taxpayer, his tax bill will be £3,016 (£7,540 @ 40%). The employer will be liable to Class 1A NICs of £965 (£7,540 @ 12.8%).

Of course, driving a different car could cut the tax bill.

Example continued

If Charlie had a company car throughout 2006/07 with a 1.6 litre diesel engine, with CO2 emissions of 135 g/km and a list price of £17,000, the percentage from the table would be 15%, plus the diesel supplement of 3%, so the benefit would be £3,060 (£17,000 @18%). If Charlie is a higher rate taxpayer, his tax bill would be cut by £1,792 ((£7,540 - £3,060) @ 40%). The employer’s NICs bill would also be cut.

If cleaner company cars interest you, a good starting point is www.comcar.co.uk

Please contact us if you would like to review the position of company cars or would like to talk about the calculation of car benefits.

Company cars 2006/07 and 2007/08
CO2 emissions (gm/km)
(round down to nearest 5gm/km)
% of car’s list price taxed
Fuel benefit (£14,400 x %)
£
 Company cars
  • For diesel cars add a 3% supplement, but maximum still 35%. This is waived for Euro IV diesels. For 2006/07, no waiver for diesels registered on/after 1 January 2006.
  • Discounts apply to certain environmentally friendly cars.
  • For cars registered before 1.1.98 charge is based on engine size.
  • The list price includes accessories and is subject to an upper limit of £80,000.
  • List price is reduced for capital contributions made by the employee up to £5,000.

Fuel benefits

  • The fuel benefit charge is proportionately reduced if provision of private fuel ceases part way through the year.
  • The fuel benefit is reduced to nil only if the employee pays for all private fuel.
up to 140
15
2,160
145
16
2,304
150
17
2,448
155
18
2,592
160
19
2,736
165
20
2,880
170
21
3,024
175
22
3,168
180
23
3,312
185
24
3,456
190
25
3,600
195
26
3,744
200
27
3,888
205
28
4,032
210
29
4,176
215
30
4,320
220
31
4,464
225
32
4,608
230
33
4,752
235
34
4,896
240 and above
35
5,040