Company Car Tax Changes
Companies cars are that are given to privileged employees as a BIK (Benefit-in-kind) is subject to tax. The tax rate on company car is calculated by the price of the vehicle together with the emissions and personal usage. The only exception to the rule is if the employee that has been given a company car earns less than £8,500 per.
The tax on company cars is usually payable by the employee and is worked out by the BIK price, car cost and how much tax the staff member pays for the running and maintenance of the vehicle. The new bands for the 2013/14 tax year start at 10%. However, in the last year HMRC has introduced other changes that give you the opportunity to cut your tax costs on company cars.
Change to company car tax rules
The system for company car tax was changed on April 1, 2012 and now uses a system which features four brand-new categories which take into account CO2 emissions of new cars that have entered the market.
If the car is rated zero for CO2 emissions, no tax is payable. Vehicles that emit 1-75g/km are subject to five cent tax. CO2 emissions above this threshold are divided into the following tax brackets:
• 76-99g/km – 10%
• 100-104g/km – 11%
• 105-109g/km – 12%
• 110-114g/km – 13%
• 115-119g/km – 14%
The rule applies to both petrol and diesel cars, but you should also consider that vehicles with diesel engines also carry a three per cent surcharge. The highest tax band will remain unchanged at 35% tax for cars which emits 220h/km or above. The threshold had previously been 225g/km.
The treasury explained the main reasons behind the changes is to reflect that the CO2 emissions for brand new cars sold in the UK dropped from 165/km to 138g/km from 2007 to 2011 in an attempt to reduce car emissions to meet the governments green energy targets.
Rules on taxable benefits for company cars
Companies are able to make use of cars provided by employers for private journeys but employees and directors will be liable for BIK. Directors do have the advantage of controlling the balance sheets so in theory can avoid or limit the BIK tax which they have to pay.
Saving arrangement quashed
In the past, many companies have tried to find a loophole in the company car tax system by setting up a separate partnership and providing cars through a third party arrangement. HMRC have stamped out this tactic if the partnership with a third party dealer is set up purely to provide cars for directors and employees. However, companies can still save money by making a fixed management charge set with a commercial rate.
Directors with company cars have no option but to pay tax under the benefit-in-kind rules. The rules of tax on company cars is something of a grey area o if you would like further advice do not hesitate to contact us, a low fixed fee accountant, on 08000 235 234 or by e-mail at email@example.com