The measure

A number of changes announced in this year's Budget will have an impact on the cost of company cars and private fuel to both employers and employees.

Company car tax rates

The company car tax rates to 2013-14 were already known. In line with motoring industry requests, the Government has announced rates for a further three tax years until 2016-17. In 2014-15, the appropriate percentage of a company car's list price subject to tax will increase by one percentage point over the prior year for cars emitting more than 75g/km of carbon dioxide, to a maximum of 35 per cent and by two percentage points, to a maximum of 37 per cent in both 2015-16 and 2016-17.

The special rates that exist for zero emission and ultra low carbon cars until 2014-15 will be replaced with 13% in 2015-16 and 15% in 2016-17. The 3% supplement for diesel cars will be removed from April 2016.

The Government also announced that certain security enhancements will be excluded from being treated as accessories for the purpose of calculating the cash equivalent of the benefit on company cars made available for private use. These changes take effect retrospectively from 6 April 2011.

Private fuel benefit

The multiplier used to calculate the cash equivalent of the benefit of free fuel provided to employees will increase from £18,800 to £20,200 from April 2012. The Government has also announced that there will be a further increase to this multiplier for 2013-14 by 2% above the rate of inflation.

Capital allowances and lease rental restriction

The period through which 100% first year capital allowances are available on expenditure on cars will be extended until April 2015. However, from April 2013 the emissions threshold will decrease from 110g/km to 95g/km.

From April 2013, the threshold for expenditure on cars to fall into the main pool (annual rate at 18%), rather than the special rate pool (annual rate at 8%) decreases from 160g/km to 130g/km. In alignment with this, tax relief available to employers is restricted (at 15%) on the lease rentals for cars with emissions over 130g/km.

Vehicle Excise Duty (VED)

It has been announced that VED rates will increase in line with the Retail Prices Index (RPI) from April 2012. The Government will seek the views of motoring groups and consider whether to reform the calculation of VED over the medium term.

Who will be affected?

Those affected are:

  • Employers who buy or lease cars that are made available to their employees for business and private use;
  • Employers who provide fuel for private use to company car drivers as a benefit;
  • Employees in receipt of a company car and private fuel.

When?

The measures have a staggered affect, with private fuel having an immediate impact from April 2012 and capital allowance and lease rental restriction consequences from April 2013.

Our view

There are a number of changes to the taxation of company cars, all aimed at increasing the tax charge suffered on cars with higher emissions. Changes to the capital allowance and tax relief rules will lead to an increase in the tax take in excess of £600 million on company cars over 4 years. This means that businesses should review their current fleet arrangements and particularly the carbon footprint in order to manage costs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.