Introduction

 

On 6th April 2002, changes were introduced on company car tax that will have an affect on over 1.5 million existing company car owners, and any businesses that may use them in the future. Small businesses now need to asses how these changes will affect themselves and their staff. Before the change, company cars were taxed in relation to business mileage, but this system has now been replaced for taxation against carbon dioxide (CO2) emissions. This change in tax has been a direct result from the government's action to reduce pollution.

 

If your business is affected by the new changes, it may be time to upgrade your fleet so that your staff are given the benefit of "greener" (environmentally friendlier) cars so that the change in tax is more favourable. Alternatively, it may be easier for you to eliminate the company car benefit and offer your staff the benefit of an increase in wages to compensate for the purchase of a new car: this way, staff can buy the car and also run it without being affected by the new tax changes.

What are the Changes?

"There will be a tax charge in respect of the benefit in kind of a car provided by an employer to a director or an employee earning £8,500 a year or more, which is available for private use. There will be a further tax charge if, in addition to a car, free fuel is provided for private use. Employers will also be liable to pay Class 1A NICs on these benefits.

There may also be a tax charge in certain circumstances if a car is provided by someone who is not the employer.

Where employees use their own vehicles for work, tax and NICs may be payable or tax relief may be due. This depends on the amount of any allowances paid for business travel and the type of vehicle used." Source: Inland Revenue

Company cars will be taxed a minimum of 15% of the list price, and an extra 1% of the car's value will be charged for every 5g/km of CO2 emitted over 165g/km (this will be reduced to 145g/km during the tax year 2004/2005). Diesel vehicles will suffer a 3% variable increase due to the extra gases that they emit unless they comply with the Euro IV emission standards.

Further Information

• Our Company Accounts Page:

The following links will provide you with further information concerning the changes:

• Car Fuel Benefit Calculator;

• Company Car Guidance for employers:

• Information about Company Cars:

• Advisory Fuel Rates for Company Cars: 

• Information about Using Own Vehicles for Work:

• Information about Company Vans:

• Information about Green Travel:

Relevant Articles

• Road Fuel Scale Charges: