Since 6 April 2002, the company car tax system is based on a percentage of the car’s list price graduated according to its carbon dioxide (CO2) emissions. The highest charge is a 35% rate and the lowest, a 15% rate, except for alternative fuels (see below). The CO2 emissions figure that applies at the date of first registration is set for the life of the car.

Finding the CO2 emissions figure

For cars registered from 1 March 2001, the CO2 emissions figure is shown on the Vehicle Registration Document (V5). Most manufacturers, importers and dealers also provide this information for new cars and this information can also be found on the Vehicle Certification Agency’s website www.vca.gov.uk

For cars registered between 1 January 1998 and 28 February 2001 information can be obtained from the Society of Motor Manufacturers and Traders at their website www.smmt.co.uk

Cars registered before 1 January 1998 are not taxed according to their CO2 emissions (see below).

Scale charge calculator

For 2003/2004, the 15% tax charge only applies to cars emitting less than 160 grams of CO2 per kilometre, increasing at a rate of 1% for each five grams per kilometre up to a maximum of 35% for emissions of 255 g/km or more.

155g/km is the qualifying level for the minimum charge for 2003/2004, for 2004/2005 it will be 145g/km, and for 2004/2005 it will be 140g/km.

Note that the given CO2 emissions figure for a car is rounded down to the nearest 5 grams per kilometre. For example: (i) a car with emissions of 169 g/km when first registered is charged at 17% in 2003/2004, 19% in 2004/2005 and 20% in 2005/2006 and (ii) a car with emissions of 209 g/km is charged at 25% in 2003/2004, 27% in 2004/2005 and 28% in 2005/2006.

Level of CO2 Emissions (g/km) % of List Price 2003/2004 2004/2005 2005/2006 155 145 140 15* 160 150 145 16* 165 155 150 17* 170 160 155 18* 175 165 160 19* 180 170 165 20* 185 175 170 21* 190 180 175 22* 195 185 180 23* 200 190 185 24* 205 195 190 25* 210 200 195 26* 215 205 200 27* 220 210 205 28* 225 215 210 29* 230 220 215 30* 235 225 220 31* 240 230 225 32* 245 235 230 33** 250 240 235 34*** 255 245 240 35****

Diesel Supplements
*	add 3 per cent if car runs solely on diesel
**	add 2 per cent if car runs solely on diesel
***	add 1 per cent if car runs solely on diesel
****	maximum charge so no diesel supplement
It is assumed that the Scale Charge Rates for 2006/2007 are the same as for 2005/2006.

Lyndsay has a petrol company car which has CO2 emissions of 202g/km and a list price of £23,450. She is a 40% taxpayer.

2003/2004 2004/2005   £ £ List Price 23,450 23,450 Percentage Charge for 202 g/km 24% 26%   Benefit in kind 5,628 6,097   Tax payable at 40% 2,251 2,439

Diesel cars

This system clearly benefits diesel cars since they have generally lower CO2 emissions than petrol cars. However, the particulates from diesel engines have contributed to an increase in respiratory illnesses such as asthma. The new rules deal with this anomaly, but aim to keep the new regime simple and straightforward, by adding a flat rate increase of 3% to the figure used to calculate a car’s benefit in kind charge. For example, a diesel car that would give rise to a tax charge based on 25% of its list price by reference to its CO2 emissions, actually gives rise to a tax charge based on 28% of its list price. Because this is a flat increase of 3%, it has a disproportionate effect on the more CO2 efficient diesels; for example it has a 20% effect on the 15% rate but only a 10% effect on the 30% rate. The 3% flat increase does not increase the maximum rate beyond 35%.

If a car meets the Euro IV standard for diesel emissions, the 3% supplement is removed. Until then, the minimum rate for even the cleanest diesel car (alternative fuel and technologies aside) is 18%. The Euro IV standard will be mandatory for all new cars from 2005.

Jack has a diesel company car which has CO2 emissions of 206g/km and a list price of £26,400. He is a 40% taxpayer.

2003/2004 2004/2005   £ £ List Price 26,400 26,400 Percentage charge for 206 g/km plus flat rate increase of 3% 28% 30%   Benefit in kind 7,392 7,920   Tax payable at 40% 2,957 3,168

Exceptions to the new CO2 based charge

The CO2 emissions system does not apply to cars with no approved CO2 emissions rating (for example they have been imported from outside the EC) or older cars registered before January 1998 for which the CO2 emissions rating is not known. The taxable benefit in such cases is based on engine size as follows:

Engine Size (cc) No approved emissions figure Older car registered before 1 January 1998 0 - 1,400 15%* 15% 1,401 - 2,000 25%* 22% 2,001+ 35%** 32%

Diesel Supplements
*	add 3 per cent if car runs solely on diesel
**	maximum charge so no diesel supplement

If a car has no approved figure of CO2 emissions and no cylinder capacity, it is taxed on 35% of the car’s list price (or 32% if the car was registered before 1 January 1998). If the car runs solely on electricity and the car was registered before 1 January 1998, the charge is 15% of the car’s list price.

Alternative fuels and technologies

Cars that are propelled by alternative fuels and vehicle technologies have the potential to offer significant environmental benefits but tend to be more expensive than conventional vehicles. Therefore, the following discounts mitigate the impact of their higher prices.

1. Electric Cars
   These are cars that are propelled solely by electricity, normally by way of a battery. The discount is 6% for cars registered on or after 1 January 1998, so that the tax charge will be 9% of the list price of the car.



2. Hybrid petrol/electric cars
   This is a new technology in which an internal combustion engine is combined with a battery electric traction system in what is called a ‘hybrid-electric’ vehicle. If the car is first registered on or after 1 January 1998, the discount is 2% of the list price plus an additional discount of 1% for each full 20g/km that the CO2 emissions figure is below the qualifying level for the minimum charge for the year. For 2003/2004 the qualifying level for the minimum charge for the year is 155g/km, for 2004/2005 it is 145g/km and for 2005/2006 it is 140g/km.
   
   A hybrid electric car has a list price of £18,000 and CO2 emissions of 119g/km.
   
   

   2003/2004 2004/2005 2005/2006 Percentage charge from the table for 119g/km 15% 15% 15% Initial discount 2% 2% 2% Difference between qualifying level for minimum charge and 119g/km 36g/km 26g/km 21g/km Whole multiples of 20g/km 1 1 1 Therefore additional discount 1% 1% 1% Therefore total discount 3% 3% 3% Therefore percentage used for charge 12% 12% 12% Therefore charge £2,160 £2,160 £2,160




3. Liquefied petroleum gas (LPG) or compressed natural gas (CNG) vehicles
   For cars first registered on or after 1 January 1998 that run solely on gas, the discount is 1% of the list price plus an additional discount of 1% of the price for each full 20g/km that the CO2 emissions figure is below the qualifying level for the minimum charge for the year. For 2003/2004 the qualifying level for the minimum charge for the year is 155g/km, for 2004/2005 it is 145g/km and for 2005/2006 it is 140g/km.
   
   A gas powered car has a list price of £17,500 and CO2 emissions of 134g/km.
   
   

   2003/2004 2004/2005 2005/2006 Percentage charge for 134g/km 15% 15% 15% Initial discount 1% 1% 1% Difference between qualifying level for minimum charge and 134g/km 21g/km 11g/km 6g/km Whole multiples of 20g/km 1 0 0 Therefore additional discount 1% 0% 0% Therefore total discount 2% 1% 1% Therefore percentage used for charge 13% 14% 14% Therefore charge £2,275 £2,450 £2,450




4. Bi-fuel vehicles
   There are two categories of bi-fuel vehicles that are eligible for discounts.
   
   Category 1: cars which have been built by the manufacturer from 1 January 2000 onwards to run on both gas and petrol. These cars have approved CO2 figures for both gas and petrol, but the tax charge is calculated using the list price and the car benefit percentage that applies to the gas CO2 figure emissions. That percentage is then adjusted to take account of the discount.
   
   The discount is 1% of the list price plus an additional discount of 1% for each full 20g/km that the CO2 emissions figure is below the qualifying level for the minimum charge for the year. For 2003/2004 the qualifying level for the minimum charge for the year is 155g/km, for 2004/2005 it is 145g/km and for 2005/2006 it is 140g/km. See (iii) above for an example of the calculation.
   
   Category 2: cars which have been first registered on or after 1 January 1998 but before 1 January 2000, and petrol-driven cars that are ‘retro-fitted’, i.e. converted to use gas as well as petrol. In both cases, the tax charge is calculated using the petrol CO2 figure and the list price for the petrol only model of the car, i.e. ignoring the additional or conversion cost of allowing the car also to run on gas.
   
   The discount is 1% of the list price, but for ‘retro-fitted’ cars to qualify for the discount the conversion must be carried out by a firm approved by the Powershift Register. This register is a buyer’s guide to clean fuel vehicles and can be accessed via www.est-powershift.org.uk. It provides information on the merits of the different types of clean fuels on offer.
   
   A petrol car with an original list price of £16,000 was converted to use gas as well as petrol at a cost of £1,700. The petrol CO2 emissions figure is 173g/km.
   
   The percentage charge for 173g/km is 18% for 2003/2004. The discount is 1% and the list price is £16,000 (i.e. ignoring the conversion costs). Therefore the charge is £2,720 (£16,000 x 17%).

The List Price

As a general rule, when an employee is provided with a company car which is available for his private use, there is a benefit in kind on which he is taxed. For this purpose employees include most directors and officers of a company.

The benefit is calculated by reference to the list price of the car. This is the price published by the car's manufacturer, importer or distributor on the day before the date of registration. In general, this is the showroom price before any negotiated discount and includes:

• VAT;
• delivery;
• number plates; and
• the price of any optional extras and extra-cost accessories fitted before registration.

Vehicle Excise Duty (the road fund licence) and the new car registration fee are excluded. Additionally, the cost of enabling a company car to run on road fuel gases is also ignored; this includes either the premium on the price of a car manufactured to run on road fuel gases or the costs of conversion.

Capital contributions

If an employee contributes towards the capital cost of the car, whether that is towards the cost of the car or towards the cost of an accessory, that contribution (or the aggregate of the contributions) is deducted from the list price up to a maximum of £5,000.

The contribution may or may not result in the employee having a financial interest in the car. If the employee has no financial interest in the car, the car’s list price is reduced in the normal way.

If the employee is entitled to reimbursement of a proportionate part of his contribution (proportionate to the total cost of the car or accessories acquired) there is no charge to tax on the employee on the reimbursement and he is able to retain the reduction to the list price of the car. If, however, the employee is entitled to full reimbursement on the sale of the car, the Inland Revenue do not accept that any capital contribution has been made. This area of taxation can become quite complicated and professional advice should be sought.

The £80,000 cap

The list price cannot exceed £80,000. Note, the £80,000 ceiling is applied after any capital contributions made by the employee. No relief is available, therefore, if capital contributions are made for a car with a list price over £85,000 (as the maximum contribution of £5,000 would not reduce the price below the £80,000 cap).

Company car for only part of the year

If a company car is unavailable to the employee for a continuous period of 30 days or more, the benefit charge is reduced by the proportion of the year for which the car is unavailable. The 30 day period can straddle the end of a tax year. It is not sufficient for the employee to be physically unable to drive his company car (for example, through illness or absence from home); the car itself must be unavailable.

If the 65 days straddled the end of a tax year so that, say, 14 days fell in one and 51 in another, the benefit is reduced by 14/365 in the first and 51/365 in the second.

The number of days is taken as 365 days even in a leap year.

If a company car is unavailable for less than 30 consecutive days and a replacement car is made available, no benefit in kind arises on the replacement car provided that it is of a similar quality to the car that it is replacing.

Contributions for private use

If an employee is required to make a contribution as a condition of the car being available for private use, this is deducted from the taxable benefit for the year in which the payments were made. It is important that the contribution is for private use. If the payments are for a better car or if they relate to reimbursement of fuel or any other costs (such as insurance) they do not qualify. If the contributions exceed the taxable benefit for the year, the benefit in kind is deemed to be nil; the balance of the contribution is therefore lost.

Car fuel

There is a new system of taxing free fuel from 6 April 2003 which is based on the carbon dioxide emissions of the car. The same percentage figure used to calculate the car benefit charge is also used to calculate the new fuel scale charge, taking account of the supplement for diesels and the appropriate discount for alternative fuels and technologies. The relevant percentage figure is multiplied by a set figure for the tax year; for 2003/2004 this is £14,400.

Note that, if the driver has a company car costing less than £14,400, he will pay more tax on the free fuel than on the company car.

Since 6 April 2003 the fuel scale charge is pro-rated where an employee stops receiving free fuel part way through the year. However, if an employee opts back into free fuel at any time in the same tax year, the full fuel scale charge for the year applies.

Bill has a petrol Volkswagen Golf with CO2 emissions of 194g/km. Free private fuel is available but Bill decides to stop taking it on 30 June 2003.

Fuel benefit charge for 2003/2004 =	£14,400 x 22% x 86/365
=	£746

Ben has a diesel car with CO2 emissions of 178 from 6 April 2003 to 31 July 2003. He doesn’t get his new diesel car until 16 August. This car will be kept for three years and has CO2 emissions of 154g/km. He receives free private fuel in the first car, but there is a misunderstanding with his employer and he doesn’t get free fuel in the second car until 1 January 2004.

Fuel benefit charge for 2003/2004 =	£14,400 x 22% x 117/365
=	£1,015

Fuel benefit charge for the second car =	£14,400 x 18% x 233/365
=	£1,655

Note that the fuel benefit charge is calculated by reference to the availability of the two cars. There is no reduction available for the period 16 August to 31 December because a company car was available during that period and Ben has returned to free fuel (on 1 January 2004) in the same tax year that he stopped (on 31 July 2003 when the first company car was handed back).

If the car is not available for the whole of the tax year, or is temporarily unavailable for a period in excess of 30 days, the scale charge is reduced proportionately.

The fuel scale charge does not apply to fuel provided to the employee for use in his own car or in a short term hired car. In these cases, the employee is taxed on the actual cost to the employer of the fuel provided for private mileage.

Is it better for an employee to pay for his own fuel for private motoring?

The break-even point arises when the tax on the fuel benefit equals the cost of the fuel.

Tax on the fuel benefit =	Cost of the fuel
=	Private miles driven x Price per gallon
	Miles per gallon
Private miles driven =	Tax on the fuel benefit x Miles per gallon
	Price per gallon

For example, a driver paying 40% tax, taking free fuel, who has a car with CO2 emissions of 185g/km which achieves 33mpg, will need to drive at least 11,115 private miles to make taking the free fuel worthwhile.

Assuming petrol costs 79p per litre:

Break-even mileage for 2003/2004 =	(14,400 x 21% x 40%) x 33
	0.79 x 4.54609
=	11,115 miles

Note: there are 4.54609 litres in a gallon).