The provision of a company car to an employee is one of the many benefits that can be provided to employees. The provision of the car has its own special rules to tax the benefit of having the car available for private use on the employee.
In broad terms the regime for taxing these cars is intended:
- to encourage manufacturers to produce cars which are environmentally friendly and
- to give employee drivers and their employers a tax incentive to choose more environmentally friendly vehicles.
Company cars are taxed according to the list price of the car but graduated according to the level of its carbon dioxide (CO²) emissions.
The percentage charge for most cars has generally been between 10% and 35%. However, changes have been announced to the emissions tables which now extend to the 2019/20 tax year.
The emissions tables for the current 2014/15 tax year and the 2015/16 tax year are set out below.
Car Benefits emissions
2014/15 Percentage of list price charged as a benefit
No CO² emissions 0%
75gms/km or less 5%
76 – 94gms/km 11%
Then every 5gms/km to 210 or more +1% to 35%
2015/16 Percentage of list price charged as a benefit
Up to 50gms/km 5%
51 – 75gms/km 9%
76 – 94gms/km or less 13%
Then every 5gms/km to 210 or more +2% to 37%
Note that diesel cars have a 3% supplement added to these percentages but the maximum cannot exceed 35%/37%. The diesel supplement will no longer apply from 2016/17.
Reimbursement to reduce the benefit
Generally, where the employee is required to pay an amount of money for the private use of the car, the amount can be deducted from the car benefit. A recent case at the First tier Tribunal examined this point, HMRC argued that a deduction can only be claimed where it is paid in the same tax year as the relevant car benefit and not if paid after the end of the tax year. However, the Tribunal did not agree and allowed the taxpayer to claim the deduction which had the effect of negating his car benefit.
As HMRC lost this point they have amended the legislation in Finance Act 2014 which ensures that a deduction is only given if payment is actually made in the tax year. This applies for 2014/15 and subsequent years so private use contributions must be paid before the end of the tax year to have effect. This applies to both cars and vans.
There is a further tax charge where a company car user is supplied with private fuel or is allowed to claim eimbursement for private journeys.
The fuel scale charge is based upon the same percentage used to calculate the car benefit and is applied to a set figure which is currently £21,700 and is increased each year.
The rules on reimbursement do not apply in the same way to the provision of private fuel. Only full reimbursement of any private fuel element is taken into consideration, thus removing the benefit. Partial deductions are not effective.
Class 1A NIC
The employer has a Class 1A NIC liability of 13.8% on both the car and private fuel benefit.
As a result of the above you may find that your income tax liability increases. If you are concerned or if you are planning to change your company car in the short term please contact us for further advice.