Company Cars

Although the taxable benefit for company car drivers continues to be calculated, in most cases, as a percentage of list price when new, the discounts for older cars and for those covering higher business mileages have been abolished.

With effect from 6 April 2002, the only measure in ascertaining the taxable benefit percentage is the car’s carbon dioxide emissions, measured in grams per kilometre. That figure can be found, for cars registered on or after 1 January 1998:-

on the car’s V5 registration document,

from your dealer,

in the data pages of some car magazines (current models only), or

from the website of the Society of Motor Manufacturers and Traders.

For those cars running on petrol and emitting less than 170 g/km of carbon dioxide the minimum taxable percentage is 15%. This rises to 35% for petrol cars with emissions of 265 g/km, or more.

For diesel powered cars there is a 3% "supplement", but the maximum remains 35%. Once you have ascertained your car’s CO₂ emissions rate, you can find your taxable percentage for 2002/03 using the following table:

CO₂ in g/km	Taxable %		CO₂ in g/km	Taxable %		CO₂ in g/km	Taxable %
CO₂ in g/km	Petrol	Diesel	CO₂ in g/km	Petrol	Diesel	CO₂ in g/km	Petrol	Diesel
Less than 170	15%	18%	200 to 204.9	22%	25%	235 to 239.9	29%	32%
170 to 174.9	16%	19%	205 to 209.9	23%	26%	240 to 244.9	30%	33%
175 to 179.9	17%	20%	210 to 214.9	24%	27%	245 to 249.9	31%	34%
180 to 184.9	18%	21%	215 to 219.9	25%	28%	250 to 254.9	32%	35%
185 to 189.9	19%	22%	220 to 224.9	26%	29%	255 to 259.9	33%	35%
190 to 194.9	20%	23%	225 to 229.9	27%	30%	260 to 264.9	34%	35%
195 to 199.9	21%	24%	230 to 234.9	28%	31%	265 and over	35%	35%

Reliable emissions data is not widely available for cars registered before 1 January 1998. For them, the following taxable percentages apply, regardless of fuel type:

Engine capacity	% taxable
Up to 1400cc	15%
1401 - 2000cc	22%
Over 2000cc	32%

So, will you be a winner or a loser under the new system? Typically, the new system will reward those driving newer cars, with lower emissions. It will result in an increased tax liability for those driving older cars, and in particular those covering a high annual business mileage.

If you drive a typical car, using petrol and costing – say – £17,000, with CO₂ emissions of 202 g/km, your tax bill as a 40% taxpayer in 2001/02 was:

	Business mileage low to nil		tax £2,380, or £198.33 per month
	Business mileage 40,000		tax £1,020, or £85 per month

For 2002/03, the tax bill will be the same regardless of the business mileage, at £1,496 for the year, or £124.67 per month – a saving of £73.66 per month on the 'perk' car; an additional £39.67 per month to pay for the business user

Some features of the tax system remain – notably the special rules for contributions by employees, for more valuable classic cars and the flat rate charge for the private use of company vans.

Looking beyond 2002/03

The tax cost is also set to rise in 2003 and again in 2004, as the point at which the taxable percentage rises above 15% will be reduced for 2003/04 (from 169 to 159 g/km) and for 2004/05 (from 159 to 149 g/km). The equivalent tax figures for our example are:

	2003/4		£1,632, or £136 per month
	2004/5		£1,768, or £147.33 per month

Alternatives

There are alternatives to running a company car. To decide whether you might be better off buying a car yourself and claiming for business mileage at the statutory rates requires a detailed calculation of your costs and savings, as well as an understanding of the non-cash benefits of running a company car – seek professional advice. Or consider running a company van instead – the maximum tax liability for someone running a company van in 2002/03 is £200 - £16.67 per month. You might also consider alternatively fuelled cars, which may reduce the minimum charge to less than 15%.

Employers

Running a fleet of company cars has advantages and disadvantages. You might run a simple comparison of costs under the new scheme, but it would be better to rerun your cost/benefit analysis to reflect non-tax considerations. One thing is likely, however – that the new system will increase the cost of high mileage fleets.

Just as employees pay income tax at rates of up to 40% on the taxable car benefit, so employers pay Class 1A national insurance contributions – at 11.8% for 2002/03.

Car fuel benefits for 2002/03

Engine size	Petrol	Diesel

Up to 1400cc	£2,240	£2,850
1401 - 2000cc	£2,850	£2,850
Over 2000cc	£4,200	£4,200

The scale rates are to be replaced, with effect from 6 April 2003, with an emissions based charge on the provision by employers of fuel for private mileage.

Mileage rates

The rates for the maximum tax free mileage allowances for 2002/03 are as follows:

First 10,000 miles		40p per mile
Over 10,000 miles		25p per mile

VAT scale charge for quarters commencing on or after 1 May 2002

Engine size	Petrol	Diesel

Up to 1400cc	£33.65	£31.57
1401 - 2000cc	£42.59	£31.57
Over 2000cc	£62.85	£39.91