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The government changed the basis of tax on cars and fuel provided by employers from 5 April 2002. It is worthwhile for all employees, including directors, considering their car policy under the new rules.
New rules from 6 April 2003 allow fuel benefit to be apportioned when supply of fuel stops during the tax year. Remember the private fuel scale charge attracts Class 1a national insurance at 12.8% and output VAT must also be considered. An employee can agree to repay the employer for all private fuel used in a tax year, and thus avoid the benefit, but the repayment must be made during the tax year, and it is a good idea to write to the tax office before the end of the tax year on 5 April stating what has been done. Advisory figures have been released - see Mileage Rates (Fuel Only).
Where any employer provides a car, the assessable benefit is calculated on the revised basis from 5 April 2002. It favours the use of newer, more fuel efficient cars. For cars registered on or after 1 January 1998, it is based on the list price and carbon dioxide emissions of the car. For cars registered before 1 January 1998, it is based on the price and engine size at 15% up to 1400cc, 22% between 1401cc and 2000cc, and 32% for engines over 2000cc and rotary engines. Electric cars are taxable at 9% of the list price.
It is worthwhile emphasising that the benefit is based on the list price with appropriate accessories and not the price actually paid for a new car which might be reduced by a discount from the dealer or manufacturer. Current list prices are often available on manufacturers web sites, such as www.audi.co.uk, www.bmw.co.uk, www.ford.co.uk, www.mercedes-benz.co.uk, www.mg-rover.com, www.nissan.co.uk, www.renault.co.uk, www.toyota.co.uk, www.vauxhall.co.uk.
In many cases it is beneficial for employees who have previously been provided with a car to negotiate for additional salary and to provide their own car and claim business mileage at the Revenue Authorised Mileage Rates (RAMR). These rates are more generous for smaller cars from 6 April 2001 to encourage the use of smaller cars. Remember the Road Fund Licence will also be less for cars under 1500cc. Some companies such as Servius.plc and 1st4ContractHire claim to use their purchasing power to be able to provide cost effective personal leasing.
We can calculate comparative costs for individual circumstances if requested.
From 6 April 2005 the tax is based on the list price and CO2 emissions as follows - (Euro-4 diesels will have to meet a new European standard)
| CO2 emissions in grams per km | Petrol and Euro-4 diesels | Ordinary diesels |
| up to 144 | 15% | 18% |
| 145-149 | 16% | 19% |
| 150-154 | 17% | 20% |
| 155-159 | 18% | 21% |
| 160-164 | 19% | 22% |
| 165-169 | 20% | 23% |
| 170-174 | 21% | 24% |
| 175-179 | 22% | 25% |
| 180-184 | 23% | 26% |
| 185-189 | 24% | 27% |
| 190-194 | 25% | 28% |
| 195-199 | 26% | 29% |
| 200-204 | 27% | 30% |
| 205-209 | 28% | 31% |
| 210-214 | 29% | 32% |
| 215-219 | 30% | 33% |
| 220-224 | 31% | 34% |
| 225-229 | 32% | 35% |
| 230-234 | 33% | 35% |
| 235-239 | 34% | 35% |
| 240 and above | 35% | 35% |
See also -
Additional Passenger Rate - a
new tax free payment from 6 April 2002.
Mileage Rates (Fuel Only) - new advisory
figures for 2002.
Mileage Rates (RAMR) - Revenue Authorised Mileage Rates
for employee owned cars.
Mileage Record - print this
handy form to record your business mileage
VAT in Mileage Allowances - can be
reclaimed by some VAT registered businesses.
Business Cars - the rules on tax relief
Car Fuel Benefit - changes from 5 April 2003.
Disabled Employees - additional tax exemptions.
Travel and Subsistence - new rules on
commuting since 6 April 1998 - are you complying?
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 14 August 2006.