Disabled drivers of company cars receive additional tax concessions

Company cars with automatic transmission generally give rise to a higher benefit in kind than their manual equivalent. Some disabled drivers who cannot use manual cars enjoy a reduced benefit charge, which also attracts lower Class 1A national insurance contributions (NICs). From 6 April 2009 this reduction will be extended.

Baker Tilly analysis

The benefit in kind arising from a company car is calculated by applying an 'appropriate percentage' to the list price of the car. The percentage is set by reference to the CO2 emissions of the car, with higher emissions giving rise to a higher benefit.

Automatic cars generally have both higher emissions and a higher list price, creating a double disadvantage for certain disabled drivers. At present, such drivers are allowed to set their 'appropriate percentage' using the emissions of the equivalent manual car. From April 2009 they will also be able to use the equivalent manual list price.

This is a welcome and rational extension of the existing rules.

In detail

To qualify for the reduced benefit rules, the driver must hold a 'blue badge', and be obliged to drive an automatic car.

If (unusually) the equivalent manual car has higher emissions or a higher list price than the automatic version, the disabled driver will be able to choose the lower of the two figures.

Class 1A NICs are paid by the employer on the benefit charge arising from provision of the car. The reduced benefit for a disabled driver is also used as the basis of the NIC charge.

Legislation to enact these measures will be included in the Finance Act 2009, resulting in a change to Sections 123-124 of the Income Tax (Earnings and Pensions) Act 2003.