The taxable benefit arising on a company car is calculated using the car’s full manufacturer’s published UK list price, including the full value of any accessories (excluding a mobile phone and anything to help drivers with disabilities). Any discounts or extras such as air-conditioning, metallic paint, and so on, that a private buyer can obtain, are ignored, so the taxable value is likely to be more than the cost would be for a private purchase.
Up to £5,000 may be deducted from the list price calculation for any capital contribution made by the employee – this is common where an employee wants a better car than the one his employer is prepared to provide.
Special pricing rules apply for classic cars (those over 15 years old at the end of the tax year with a market value more than the list price and worth at least £15,000). HMRC help sheet HS203 has further information on classic cars (www.hmrc.gov.uk/helpsheets/hs203.pdf).
The next step is to ascertain the car’s carbon dioxide (CO2) emissions. The greener the car, the lower the taxable benefit will be. Approved CO2 emissions figures can be found on the Vehicle Registration Document (V5) or provided by the manufacturer. Once the CO2 emissions level is known, the ‘appropriate percentage’ for the car can be established. This can be found in HMRC help sheet HS203 (see above) – levels range from 10% for the cleanest cars up to 35% for those pumping out the dirtiest fumes.
The list price is then multiplied by the appropriate percentage and this figure gives the taxable value of the car. The value can be pro-rated where the car is only available to the employee for part of the year. The employee pays income tax on the final figure at his appropriate tax rate (20% for basic rate taxpayers; 40% for higher rate taxpayers).
The appropriate percentage for electric cars is zero, so there is currently no taxable benefit charge on company cars that run solely on electricity.
Provision of fuel
In addition to the company car benefit, a taxable benefit arises on any fuel provided by an employer for private mileage. For 2011-12 the benefit is calculated by multiplying the car’s CO2 percentage by £18,800. The charge is the same regardless of whether the employee uses 2 litres or 2,000 litres of fuel!
Employers can pay a tax-free fuel allowance where employees pay for fuel used for business travel in a company car. This currently ranges from 15p per mile for smaller petrol cars (under 1400cc) to 26p per mile for larger petrol cars (over 2000cc). Lower rates apply for cars using diesel and cheaper liquid petroleum gas (LPG). Current mileage rates can be found on the HMRC website at www.hmrc.gov.uk/cars/advisory_fuel_current.htm.
Employers can pay a tax and NIC-free amount for business mileage undertaken in the employees own car. The rates are currently:
• 45p per mile for the first 10,000 miles
• 25p per mile for each subsequent mile
• 24p per mile for motorcycles
• 20p per mile for bicycles
• 5p per mile extra for each passenger carried on work-related journeys
If an employer reimburses mileage at less than these rates, the employee can claim the balance (but not the 5p per mile passenger extra) against their taxable income. So, if an employer pays 35p per mile for 1,000 miles, the employee has a 10p per mile shortfall and can claim £100 against their taxable income.
HMRC provides an online company car and car fuel benefit calculator, which allows you to work out the taxable value and gives an indication of the income tax you’re likely to pay. It is available online at www.hmrc.gov.uk/calcs/cars.htm.