As eco-friendly policies tax drivers the benefits of company cars need to be considered

This article is about transportation. No, not the relative merits of fleeing the country as a tax avoidance measure. Instead, we will look at the impact of tax on transport.

The Government has reminded us that if we prefer the comfort of a car to an overcrowded public transport system, our tax bills are going to increase. Car users are an acceptable target for Government tax increases - like smokers, we know we should try harder to do without and accept paying a bit extra for the "pleasure".

And yet the car remains a widely used employee benefit - so, with cash now frequently offered as an alternative can you be sure that you're getting your money's worth out of a company car? And what other transport falls into the taxman's grasp?

For those with a company car, the basic taxable benefit is calculated as 35 per cent of the list price of the car, including VAT, plus the cost of any extras. This benefit figure is reduced by a third if the business mileage (which doesn't include home to work travel, of course) is between 2,500 and 18,000 miles in a tax year, and by two thirds if it is over 18.000. The resulting figure can then be reduced by another third if the car is more than four years old at the tax year-end.

If your employer also pays for your private fuel there is a fixed fuel benefit dependent on the size of the engine - so it may be worth considering a nippy 1.4 litre car rather than a gas-guzzling 3 litre. This flat rate applies for any amount of private fuel received in the year - so check whether you should pay back the entire cost of any private fuel, particularly if you do low mileage. On the other hand, a 40 per cent taxpayer with a big car only has to use more than pounds 11.50 worth of private fuel per week in the coming year to make it a benefit worth having. It is perhaps indicative of the Government's view on company cars that private fuel benefit saw a 12.5 per cent rise in the Budget.

So is it worth having a company car or should you just take the cash alternative and hop on your bike? They still have their attractions - even a high taxable benefit is arguably worth it for the liberation from the hassle of insurance, repairs and road tax. And while the fuel tax benefit is increasing, it is still a valuable perk in the right circumstances.

Those without a company car, but who use their own car for business travel can look to the Fixed Profit Car Scheme. This is an attempt to do away with the detailed claims for business mileage in a private car. Any reimbursement made to you will not be taxable as a benefit providing it is within Inland Revenue designated limits - as an example, 35p per mile for a 1500cc car. (The figures always get lower once you have claimed for over 4,000 miles in a year.) Nowadays, if your employer pays you less than these designated amounts for business mileage you can claim the difference as a deduction from your taxable income.

What about other types of business travel? Most of it will be for business purposes, with no benefit resulting. But if your company pays for a flight to Australia and the only business purpose is a couple of drinks with your colleagues in the Sydney office you may run into tax problems as well as jet lag.

There are still those who take a break from the hectic corporate whirl to use transport for pleasure. Again the car is under attack from the taxman with rising petrol costs (up 14p per gallon in 1997/98) and increases in vehicle excise duty.

Then there is the doubling of Air Passenger Duty from 1 November - pounds 10 within Europe and pounds 20 outside - plus a rise in Insurance Premium Tax to 4 per cent on sales of travel insurance. This can go up to 17.5 per cent if the insurance is bought with your travel package.

A change of Government might bring added pressures, with higher car benefits taxes, more eco-friendly measures generally and tax on the provision of car parking spaces by the office. Might we see chief executives being chauffeured by tandem to their city offices?

John Whiting is a tax partner at Price Waterhouse

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