Company cars

When it comes to the taxation of company cars, the Government has a clear direction of travel. In broad terms, fuel-efficient cars are subject to a lower rate of tax than vehicles with large engines and high petrol or diesel consumption. And by moving the tax bands, the Government is seeking to encourage employers to provide employees and managers with either smaller vehicles or vehicles with efficient hybrid engines.

Company car tax ranges from 15% to 35% of list price for most ordinary cars. From April 2010 the band that triggers the minimum rate of tax has been narrowed, with the starting point falling from 135 to 130 g/km. This has a knock-on effect on the other tax bands. For instance, the 16% band starting point has fallen from 140 to 135 g/km. All diesels have a 3% surcharge, which means a driver paying 15% for a petrol-driven engine would pay 18% for the equivalent diesel.

It’s a trend set to continue with a further re-calibration of the bands scheduled for next year. However, qualifying low-emissions cars (rated at 120 g/km or less) will be taxed at 10% of list price (13% for diesels). This benefit will not necessarily help company car owners, as most vehicles in this range are too small to be appropriate for, say, sales reps or senior executives. However, certain hybrids will qualify, and they can attract a 100% first-year capital allowance for the employer. Electric cars, taxed at 9% of list price at the moment, will attract no benefit in kind charge for the next five years.

At the other end of the scale, from 6 April 2011, highly priced cars, which are currently taxed based on a list price of £80,000 regardless of actual price, will be taxed on their full value.