Greener company cars on way, says tax specialist

And as well as helping the environment, moves towards greener cars will also cut costs for employees and employers alike, according to Brian Gooch, tax manager at leading independent chartered accountants and specialist business advisers Hawsons, of Glossop Road, Sheffield.

Employees and directors who have the private use of an employer-owned car have to pay income tax on the value of the benefit and employers are responsible for class 1A National Insurance costs on the same amount. The valuation of a car benefit is worked out by applying a percentage to the list price of the car based on its CO2 emissions and fuel type.

From last April, there was an increase of 1 per cent, from 15 per cent, on the benefit for all cars with of up to 235g/km, with all cars with higher emissions taxed at the maximum 35 per cent of list price. Two more changes designed to encourage the development and purchase of lower emission vehicles were also introduced, with a 0 per cent charge applying to zero-emission vehicles and a new 5 per cent band for cars with emissions of 75g/km or less.

Next April, there will be a 1 per cent increase in the benefit, to 17 per cent, on cars with emissions of up to 230g/km, and the £80,000 list price cap is to be abolished, meaning that more expensive cars will be taxed on the true list price value.

Brian added: “The 0 per cent charge means that an employee with a qualifying car will pay no tax on the benefit and, likewise, the employer will have no National Insurance cost. There is also a new 5 per cent band for cars with emissions of 75g/km or less and various manufacturers are busy developing cars with low emissions, although there are not yet any vehicles on the market with emissions lower than 86g/km.”

From April 2012 cars will have to have emissions of between 76g/km and 99g/km to be taxed at 10 per cent of the list price, whereas this tax rate currently applies for vehicles with emissions up to 120g/km.

Cars with emissions of 100g/km will be taxed at 11 per cent, with an extra 1 per cent for every 5g/km increase, subject to a maximum of 35 per cent when emissions exceed 220g/km.

Brian forecasts: “There is going to be a continued swing towards greener vehicles and everyone should benefit – employees with lower taxes, employers with reduced NIC payments and, of course, the environment and society at large.”