Clarity on Cars and Tax

Written by Paul Windsor on 22 July 2014

Although company cars are less common now, they are a subject that continues to create confusion amongst our clients. So with the sun shining and hoods folded down, we take a quick blast through the current regulations and suggest the lowest tax options for you and your business.

When a car is made available to an employee for private use the employee must pay tax on the benefit. The company car benefit is based on two factors: the new price of the car and its official CO2 emissions. The CO2 emissions dictate what percentage of the new price is taxed each year.

There are currently a range of percentages – from 0% for electric cars to 35% for cars emitting more than 210 grams of CO2 per kilometre.  Hybrid and electric cars emitting between 1-75 g/km are in a special lower rate category of 5%.

The obvious advice to minimise the employee's taxable benefit is therefore to provide electric or ultra low emission cars however, from 5th April 2015 the zero rate will be abolished and all cars from 0-50 g/km will be at 5% and 51-75 g/km at 9%. Thereafter the appropriate percentage increases by 1% for every 5 g/km of CO2 emissions up to a new maximum of 37% for 210 g/km and above.

With the demise of the tax free electric car next year, the only sensible option has to be to adopt tax exempt Approved Mileage Allowance Payments (AMAPs) which are payments you make to an employee for expenses related to their use of their own vehicle for business travel.  The current rates are 45p per mile for the first 10,000 miles and thereafter the rate reduces to 25p per mile within each tax year.

For more information on taxable benefits please ask your usual contact at WSM.