Taxation and the Company Car

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1 Home Budget 2012 Vehicle Excise Duty / First Registration Fee / P11D value 2012 / 2013 Company car taxation Fuel allowances Class 1A National Insurance Contributions Writing Down Allowances / Lease rental restrictions Exit The explanations and data set out in this guide are for general information only, and though given in good faith, are given without any warranty as to their accuracy and do not take into account changes made after the date of publication. Please refer to your legal or tax adviser for individual professional advice. All information correct at date of publication, March Audi Fleet 01

2 The 2012 Budget and its impact on company car taxation The annual Budget is the single most important economic and financial statement made each year by the Chancellor of the Exchequer. Any changes made to company car taxation are announced at this time, usually with effect from 6 April. This publication incorporates all relevant information announced in the 2012 Budget, held on 21 March, which may be summarised as: Vehicle Excise Duty Increased in line with inflation (but frozen for road hauliers): see page 3. Benefit In Kind % bands While the Benefit In Kind tax bands have previously been published for tax years 2012/13 and 2013/14, the 2012 Budget announced the rates for the next three tax years see page 4. In 2016, the 3% supplement for diesel engines will be removed. Zero Carbon / Ultra Low Emissions Cars BIK rates From April 2015, the five-year exemption from Benefit In Kind (BIK) taxation for zero carbon cars and the lower BIK rate for ultra low emissions cars ends. The appropriate percentage for these categories will be 13% for 2015/16 tax year, 15% for 2016/17. Fuel Benefit Previously assessed as a benefit worth 18,800, this has now been increased to 20,200 per annum. Approved Mileage Allowance Payments No change: see page 5. Class 1A NIC rates No change: see page 6. Writing Down Allowances (WDA) From 6 April 2012 to 31 March 2013, the Writing Down Allowance for cars purchased outright with CO2 emissions of up to and including 110g/km is 100% in the first year; from g/km the rate is 18% per annum, and over 161g/km the rate of 8% per annum applies. The 2012 Budget extends the 100% first year WDA concession from 1 April 2013 to 31 March 2015, but the qualifying emissions band is reduced to 95g/km and below. At the same time, the 18% WDA band changes to g/km, and the 8% band is for cars with CO2 emissions of 131g/km or more. See page 7. Leasing Allowances From April 2013, the 100% first year allowance against corporation tax for vehicles with emissions below 161g/km ends. See page 7. Fuel Duty The planned increase in fuel duty delayed from January 2012 is to go ahead at 3.02p per litre from August Top Rate Taxation The 50% Top Rate tax rate will be reduced to 45% from 6 April

3 Vehicle Excise Duty (VED) / First Registration Fee / P11D value Vehicle Excise Duty (VED) The level of carbon dioxide (CO 2) emissions that a car produces determines the amount of Vehicle Excise Duty payable at the rates shown below. The First Year Rate is incorporated within a new car s Recommended On-The-Road price: in subsequent years the Standard Rate applies. Vehicle Excise Duty rates effective 1 April 2012 CO2 emissions First year Standard (g/km) rate rate A up to B C D E F G H I J K L M over 255 1, First Registration Fee Vehicles registered and taxed for the first time on the Driver and Vehicle Licensing Agency (DVLA) records are required to pay a fee of While certain vehicles are exempt from this payment (such as those first registered and licensed in the disabled exempt taxation class) it effectively applies to all new cars, and is incorporated within a new car s Recommended On-The-Road price. P11D Value When calculating personal taxation on company car drivers or Employer s Class 1A National Insurance Contributions, reference is often made to a car s P11D value. This is the car s Recommended On-The-Road (ROTR) price including the full cost of options and accessories over the value of 100 less the First Registration Fee and Vehicle Excise Duty. 03

4 Company car taxation Employees driving a company car for private use (which includes commuting to their place of work) are taxed on this Benefit In Kind, irrespective of whether the car is new or used, owned or leased by the company. To assess the cash value of this Benefit, HMRC takes into account: The value of the car when new Not the price paid, but the manufacturer s Recommended On-the-Road (ROTR) price, less the Vehicle Excise Duty and First Registration Fee. Also included are the value of options, and the cost of accessories including fitting charges over 100. The resultant figure is the P11D value. Fuel type Diesel cars currently attract 3% more Benefit In Kind (BIK) tax than petrol cars but this differential will end in the 2016/17 tax year. CO2 emissions Manufacturers are obliged to state the emissions level of every car they sell. Employee contributions Employees can make a cash or reduction of salary contribution (up to a maximum of 5,000) towards the vehicle s cost (typically to upgrade it) which will reduce the P11D value, and thus their taxation. Calculating BIK Tax in 2012/13 To determine the tax payable, the total P11D value is multiplied by the appropriate Benefit In Kind tax percentage for the car s CO2 emissions/fuel type, using the accompanying table. The result is the calculated cash value of the Benefit: multiply this by the driver s tax rate (20%, 40% or 50%) to assess the amount due for that tax year. Vehicle: Audi A3 1.6 TDI 105PS SE CO2 emissions: 109g/km (diesel) 2012/13 BIK% rate: 15% Recommended On The Road price: 19, Less: Vehicle Excise Duty ( 0.00) Less: First Registration Fee ( 55.00) Add: Metallic paint option P11D value 20, Calculated cash value of car (BIK x P11D value) 3, /13 Benefit In Kind tax due Basic Rate (20%) tax payer Higher Rate (40%) tax payer 1, Top Rate (50%) tax payer 1, Please note: the driver s salary may mean that some or all of the Benefit In Kind may be paid at a higher tax rate. For employees who are subject to PAYE, this tax will be collected by adjustment of their personal tax code. CO2 (g/km) Percentage of P11D value to be taxed 2012/ / /15 Petrol (Diesel) Petrol (Diesel) Petrol (Diesel) 0 0 (0) 0 (0) 0 (0) (8) 5 (8) 5 (8) (13) 10 (13) 11 (14) (13) 11 (14) 12 (15) (14) 12 (15) 13 (16) (15) 13 (16) 14 (17) (16) 14 (17) 15 (18) (17) 15 (18) 16 (19) (18) 16 (19) 17 (20) (19) 17 (20) 18 (21) (20) 18 (21) 19 (22) (21) 19 (22) 20 (23) (22) 20 (23) 21 (24) (23) 21 (24) 22 (25) (24) 22 (25) 23 (26) (25) 23 (26) 24 (27) (26) 24 (27) 25 (28) (27) 25 (28) 26 (29) (28) 26 (29) 27 (30) (29) 27 (30) 28 (31) (30) 28 (31) 29 (32) (31) 29 (32) 30 (33) (32) 30 (33) 31 (34) (33) 31 (34) 32 (35) (34) 32 (35) 33 (35) (35) 33 (35) 34 (35) (35) 34 (35) 35 (35) (35) 35 (35) 35 (35) (35) 35 (35) 35 (35) Future years: in tax year 2015/16 the BIK % for sub 76g/km cars will be 13%, all other bands increase by 2% to a max. of 37%. For 2016/17 tax year all bands increase by a further 2% (max. 37%) but the 3% diesel supplement is removed. 04

5 Fuel allowances Employer-provided free fuel If a company car driver has fuel for their private use paid for by their employer (and commuting to work is considered private mileage), this will increase their personal taxation. For 2012/13 tax year, HMRC regards this Benefit (or fuel multiplier as they term it) as being worth 20,200 per annum, irrespective of the number of private miles covered. To calculate the tax payable, this figure is multiplied by the appropriate Benefit In Kind tax percentage for the car s CO2 emissions/fuel type, using the table on page 4. The result is the calculated cash value of the Benefit: multiply this by the driver s tax rate (20%, 40% or 50%) to determine the amount due for that tax year. Vehicle: Audi A3 1.6 TDI 105PS SE CO2 emissions: 109g/km (diesel) 2012/13 BIK% rate: 15% Fuel multiplier 20, Calculated cash value of fuel (BIK x fuel multiplier) 3, Fuel Benefit due 2012/13 Tax Year Basic Rate (20%) tax payer Higher Rate (40%) tax payer 1, Top Rate (50%) tax payer 1, Please note: the driver s salary may mean that some or all of the Benefit In Kind may be paid at a higher tax rate. For employees who are subject to PAYE, this tax will be collected by adjustment of their personal tax code. Free fuel : advantage or not? Before a company car driver accepts free fuel from their employer, they should compare the amount of tax to be paid versus the cost of paying for their own fuel. Vehicle: Audi A3 1.6 TDI 105PS SE CO2 emissions: 109g/km (diesel) 2012/13 BIK% rate: 15% Fuel economy: 68.9mpg (Combined) Diesel fuel cost: 1.45/litre Fuel benefit (40% tax payer) 1, To determine how many private miles can be travelled for this amount: Fuel benefit charge fuel cost litres Convert litres to UK gallons (litres x 0.22) gallons Mileage based on combined mpg (gallons x mpg) 12,670 miles This is the break-even point: if the employee travels fewer private miles, they would be better off paying their own fuel costs. More, then free fuel would be their better option. Private car reimbursement rates Employees using their private vehicle for company business can receive 45p/mile up to 10,000 miles per annum, and 25p/mile thereafter, without attracting additional Tax or National Insurance. These are the agreed exempted amounts claimable under HMRC Approved Mileage Allowance Payments (AMAPs). Reimbursements made at a higher rate will incur additional personal taxation and conversely, employees can claim tax relief if paid at a lower rate. 05

6 Class 1A National Insurance Contributions A company has to pay Class 1A National Insurance Contributions on Benefits provided to their employees, and for a car this applies to both the vehicle itself and free fuel provided for private use. The amount to be paid is calculated in a similar way to Benefit In Kind taxation, as described here: Car benefit The total P11D value is multiplied by the appropriate Benefit In Kind tax percentage for the car s CO2 emissions/fuel type, using the table on page 4, and then the result is multiplied by 13.8% the standard Class 1A rate on employer-provided benefits. Vehicle: Audi A4 2.0 TDIe 136PS SE CO2 emissions: 112g/km (diesel) 2012/13 BIK rate: 16% P11D value 26, Calculated cash value of car: (BIK x P11D) 4, /13 Class 1A NIC: 13.8% NIC car liability: (Class 1A x cash value of car) Fuel benefit Calculated as before, but instead of the P11D value, the flat rate Fuel Benefit figure of 20,200 is used. Vehicle: Audi A4 2.0 TDIe 136PS SE CO2 emissions: 112g/km (diesel) 2012/13 BIK rate: 16% Fuel benefit value: 20, Calculated cash value of fuel: (BIK x Fuel Benefit) 3, Class 1A NIC 13.8% NIC fuel liability: (Class 1A x cash value of fuel)

7 Writing Down Allowances / Lease rental restrictions As with virtually all other areas relating to taxation and company-owned vehicles, the treatment of capital allowances has been designed to encourage the use of cars with lower CO2 emissions. 100% Writing Down Allowance Until 31 March 2013, all cars purchased outright with CO2 emissions of 110g/km or less qualify for 100% Writing Down Allowance (WDA) in the first year, giving a useful cash flow benefit. From 1 April 2013 to 31 March 2015, all cars purchased outright with CO2 emissions of 95g/km or less qualify for 100% Writing Down Allowance (WDA) in the first year. 18% pa Writing Down Allowance Until 31 March 2013, all cars purchased outright with CO2 emissions of between 111g/km and 160g/km can enjoy a WDA of 18% per annum. From 1 April 2013 to 31 March 2015, all cars purchased outright with CO2 emissions of between g/km can enjoy a WDA of 18% per annum. 8% pa Writing Down Allowance Until 31 March 2013, all cars purchased outright with CO2 emissions of 161g/km and more attract just 8% per annum WDA. From 1 April 2013 to 31 March 2015, all cars purchased outright with CO2 emissions of 131g/km and more attract just 8% per annum WDA. Lease rental restrictions Until 31 March 2013, new cars with CO2 emissions of 160g/km or less have 100% first year allowance of their lease payments offset against corporation tax, but those with emissions of 161g/km and more can only offset 85% of their lease payments. However, from April 2013, the 100% first year allowance has been removed, and vehicles with emissions of 131g/km and above can only offset 85% of their lease payments. 07

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