REV BN 30: Company Car And Fuel Benefit Tax
Who is likely to be affected?
1. Employees provided with a car that is available for their private use and free private fuel where provided; and employers who bear Class 1A National Insurance on the taxable benefit of a provided car and fuel.
General description of the measure
2. The measure:
- sets the company car fuel figure for 2005/06;
- simplifies the current alternative fuel discounts for company cars; and
- sets the company car tax charge for 2007/08;
Operative date
3. 6 April 2005 – company car fuel multiplier
6 April 2006 – simplification of the current alternative
fuel discount
6 April 2007 – company car tax.
Current law and proposed revisions
Company car fuel
4. An additional taxable benefit arises if the employee receives free fuel for the company car for their private use. The taxable benefit calculation was reformed in April 2003 to align the charge with the environmental principles of the company car tax system. Since April 2003 the fuel benefit charge has been calculated by applying the company car tax appropriate percentage to a set figure. In 2004/05 the figure was £14,400.
5. For 2005/06 the figure for the company car fuel benefit charge will be frozen at £14,400.
Simplification to current alternative fuel discounts
6. Cars that are capable of running on alternative fuel such as LPG, CNG or battery-propelled cars, currently enjoy a discount from the equivalent company car percentage. There are different calculations of the discounts for bi-fuel gas and petrol cars depending on whether they are manufactured or converted to run on gas as well as petrol before or after the type approval.
7. The current discounts are:
- cost of conversion disregarded plus 1% discount for bi-fuel gas and petrol cars converted after type approval;
- 1% discount plus an additional 1% for each 20g/km the car’s emissions fall below the level of CO2 qualifying for the minimum petrol percentage charge for bi-fuel gas and petrol cars manufactured or converted before type approval;
- 2% discount plus an additional 1% for each 20g/km the car’s emissions fall below the level of CO2 qualifying for the minimum petrol percentage charge for hybrid petrol and electric cars; and
- 6% discount for electric-only cars.
8. For 2006/07 the discounts for cars that run on alternative fuels will be simplified to:
- cost of conversion disregarded for bi-fuel gas and petrol cars converted after type approval, no additional percentage discount;
- 2% discount for bi-fuel gas and petrol cars manufactured or converted before type approval;
- 3% discount for hybrid electric and petrol cars; and
- the 6% discount for electric-only cars will be maintained.
Company car tax
9. Where a car is made available for an employee’s private use a taxable benefit arises. Company car tax was reformed in April 2002 and is now calculated by applying a percentage to the list price of the car. The percentage is related to the CO2 emissions of the car and ranges from 15% to 35% (in 1% increments) for a petrol car. Diesel cars that do not meet Euro IV emissions standards attract a 3% supplement on the petrol percentages (capped at 35%). The 2004 Pre-Budget Report announced that from April 2006, the waiver of the 3% supplement for diesel cars meeting Euro IV standards will be withdrawn for all cars registered from 1 January 2006.
10. The CO2 emissions qualifying for the minimum petrol percentage charge have been set as follows:
2005/06 140 grams per kilometre of CO2
2006/07 140 grams per kilometre of CO2
11. For 2007/08 the level of CO2 emissions qualifying for the minimum petroleum percentage (15%) will be frozen at 140 grams per kilometre of CO2.
Further advice
12. If you have any questions about this change, please contact the Employer Helpline on 0845 7143 143 or your local Inland Revenue Enquiry Office: see the Telephone Directory for details. Information about Budget measures is available on the Inland Revenue website.
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