Crowning the company car king
3 Aug 09
Company car schemes have seen a dip in popularity in the UK over the years – largely due to ever-increasing tax burdens
by Harvey Perkins
However, changes that took effect as from April 2008 mean an employee can reduce their personal tax bill by choosing a car with the low CO2 emissions.
Savings in employee tax also equate to employer savings in national insurance contributions (NIC) and in fuel.
KPMG’s research suggests that a typical company car now emits less than 154g/km of CO2, while a typical private car acquired with a cash alternative emits 195g/km. Furthermore, while the vast majority of company cars are new when acquired, 52 per cent of cash allowance cars are second hand, and older cars often emit significantly more CO2.
This can be seen as a result of the ongoing changes to the company car tax regime that started in 2002. For many it meant switching to cars with lower emissions to save tax and NIC, but a lot of employees opted for cash and ignored the financial stimulus to go green.
Since 2002, the Government has continued to change the tax system in the UK to encourage the use of lower emission cars.
In 2003, changes were made to the way that private fuel provided for a company car is taxed – also linking it to CO2.
In 2008, a new lower band for company car tax and NIC was introduced for cars emitting 120g/km or less – 10 per cent for petrol, 13 per cent for diesel. This represents a 33 per cent reduction in the tax charge for a petrol-engined car, and gives us the lowest company car tax charge in a generation.
And in April 2009, further changes were introduced which mean that the lease cost and tax relief for the employer will reflect CO2 as well.
Under the 2009 rules there are two CO2 hurdles for a car to get under – 110g/km or below is excellent – and you get the carrot; 160g/km and below is OK. Above that is bad and you get the stick. This is slightly confusing because the lower limit for company car tax and NIC remains 120g/km.
Since 2002, we have seen cars with lower CO2 emissions largely replaced with second hand cars. However, changes in 2008 and 2009 may see the company car become king again.
Harvey Perkins is an associate partner in tax for KPMG.