Tax benefits of environmentally friendly company cars

Company cars fact sheet - December 2011

Punishing the polluters

Motorists were already feeling the pinch as a result of rocketing fuel prices but environmental considerations have caused the government to take a harsh view on cars with high CO2 emissions. This means drivers of “conventional” company cars are now facing the twin threat of higher running costs and higher taxes.

Company cars are no longer the attractive benefit they used to be. Current tax policy heavily taxes company cars with high CO2 emissions. For example, a petrol car with a list price of £64,000 and CO2 emissions of 210g/km would result in a taxable benefit of 32% of the list price i.e. £20,480. This produces a tax charge of £10,240 for an employee on the 50% tax rate.

In recent years many employers have stopped providing employees with company cars and have introduced a cash alternative . However, there are other solutions and one that may have been over looked is the provision of a car with very low or zero CO2 emissions.

Go green, get tax benefits

Different categories of tax rates apply to low emission vehicles but cars with zero emissions do not currently incur any income tax charge . Where emissions are between 1 to 120 CO2 g/km, the tax charge will range from 5% to 13% of the list price depending on the exact emissions and fuel type. These rates are significantly less than the 32% applied to the “conventional” company car.

The company benefits too

An added benefit of choosing the environmentally friendly option is that cars with emissions of less than 110g/km will attract 100% capital allowances. To continue the example above, allowances of £6,400 would be available on the “conventional” car worth £64,000 to reduce the taxable profits of the employer in the year of purchase. However, an electric car or one with CO2 emissions of 110g/km or less costing, for example, £20,000 would attract a tax write off for the full amount i.e. £20,000.

Therefore there are benefits to both the employee and the employer for going green.

Action

Whilst the government is waving a stick at high polluting cars it is also dangling a carrot for those who move to a greener outlook. There are valuable opportunities available and employers may wish to review their existing car policy to ensure they are capturing the maximum benefit allowable to both them and their employees.

Please contact Arvinder Matharu at arvinder.matharu@cbw.co.uk or on +44 (0)20 7309 3852 if you would like more information.