Tax and company cars

Deepaman Prabhakar of accountant Taxclaim examines tax on company cars.

When a company car is made available for the private use of an employee a 'benefit in kind' value is calculated in relation to the car, and the fuel if that is also provided for private use

Company cars and fuel

The threshold of CO2 emissions at which the basic 15% benefit charge starts to increase falls from130g/km to 125g/km.This means that the chargeable benefit will increase by 1% of list price for many cars. For a 40% taxpayer with a £15,000 company car, the extra tax will be £60 for the year 2011/12.The employer will also pay an additional £20.70 in Class 1A NIC. Further reductions in the thresholds have been announced to take effect in April 2012 and in April 2013, so the taxable amount will increase year on year for cars with higher ratings.

The taxable benefit of free fuel provided for use in a company car is calculated by multiplying the same percentage by a fixed figure.This will increase for 2011/12 to £18,800 (2010/11: £18,000), so for many employees the taxable amount will increase for two separate reasons.

Tax-free mileage allowances

The mileage allowance which an employer can pay to an employee for business use of the employee’s own car has been unchanged at 40p (25p for miles over 10,000 a year) since 6 April 2002.The higher rate increases to 45p with effect from 6 April 2011 (there is no change to the lower rate).Where the employer pays less than the approved rate, the employee can claim tax relief for the difference as a deductible expense.

By Taxclaim