Company cars is a major benefit-in-kind and generates the largest tax revenue of all employee reportable benefits. Employers have to wade through a raft of benefits legislation and calculation processes before the taxable value can be established. The cash equivalent calculation can be stripped down into the following components: -
([Price of car for tax purposes] x [the appropriate percentage} x [availability])
[Private Use Contributions made by the employee]
You start with the list price of the car at the date of registration of the vehicle i.e. the manufacturer’s recommended price inclusive all taxes & delivery charges, not the price actually paid. There is no longer an upper cap of £80,000. NB if the car is over 15 years old and has appreciated in value to more than the original list price, it is deemed to be a classic car and you should use the current market value.
The cost of any optional accessories added when the car is first acquired. (Do not include any equipment required by disabled employees to use the car.)
Replacement accessories costing at least £100
Capital Contributions made by the employee (up to £5,000)
The appropriate percentage is primarily dependent on the carbon dioxide emissions figure of the company car. Since 1 March 2001 every UK registered vehicle has had the CO2 emissions figure included on the V5 Vehicle Registration Document. The CO2 figure is then looked up against a ready reckoner of appropriate percentages for calculating the car benefit charge for that tax year.
If the CO2 emissions figure falls between two points round down to the next one down unless otherwise stated. E.g. CO2 emissions of 197g/km are treated as 195g/km.
Adjustments are then made to this appropriate percentage based on the fuel type of the vehicle: For years up to and including 2015-16, add 3% if car runs solely on diesel up to a maximum of 35% to 2014-15 and 37% in 2015-16. There is no diesel supplement from 2016-17 onwards.
Where the car was registered before 1998 there will be no CO2 figure available. In this case use the following table to derive the appropriate percentage.
Finally if there is no approved CO2 figure and the car is first registered after 1998 (e.g. the vehicle is a grey import) then use the following table to ascertain the appropriate percentage.
Discounts are allowed for periods of unavailability of the vehicle during the tax year. A car is treated as being unavailable on any day if the day falls:
You are not allowed to have any overlapping dates for periods of car availability. In real life, this means that when an employee changes their company car, the exchange of cars usually occurs on the same day. However for tax purposes, these must be difference days i.e. the replaced car should be unassigned on the day before the replacement car arrives.
Replacement hire cars provided for less than 30 days in the event of their main car is off the road being repaired, etc. can be ignored if they are not appreciably different than the employee’s regular car.
Finally, any private use contributions made by the employee (out of their net pay) towards the private use of the vehicle will reduce the cash equivalent value.
Some employers place a limit on the value or type of car that they make available to an employee. Occasionally the employer is willing to allow an employee to have the use of a more expensive car, if the employee pays a monthly sum representing the excess; for example the additional leasing costs over and above the employer’s limit. In these cases, the payments do not reduce the benefit charge because they do not qualify as payment for the private use of a car under EIM25250. They are merely for the availability of a more expensive car.
Examples of different scenarios relating to this can be found on the HMRC website here.
Car Fuel Benefit is calculated by applying the same appropriate percentage charge associated with the company car to the car fuel multiplier in force for that year: -
This is an all or nothing charge. If the employee travels even one private mile that the employer pays for, the full fuel benefit applies. The legislation only allows for this to be changed upon selecting a new car or at the start of the tax year. By concession, HMRC will allow the driver to give up their fuel card at any point without having to change their car and in these circumstances the fuel benefit can be pro-rated. However if the driver later wishes to reinstate their free fuel provisioning, the fuel benefit will have to apply for the whole period of availability of the vehicle, thus negating the previous period of unavailability.
If a company car driver repays the cost of their private mileage, they avoid the car fuel benefit charge. They can do this by using HMRC’s table for advisory fuel rates and multiplying this by the amount of private miles involved.