Company car is no longer an economy model

A RECENT survey showed that the company car is still Britain's favourite perk, though tax changes two years ago mean it is now an expensive one.

It is classed by the Inland Revenue as a part of your salary package that you take in a form other than cash and is taxable like other pay at your highest rate of income tax. There are special rules for calculating its taxable value.

Under the old system the tax you paid would have depended on the size of the engine and the price your employer paid for it. On 5 April 1994, the Revenue switched to a system that depends on the list price, its age and how many miles you drive for business use. The rules apply both to company cars after that date and to cars still in use.

To calculate the tax you will have to pay you must start with your car's list price, including delivery charges, the price of any optional extras and VAT. The maximum possible price is taken to be pounds 80,000.

Say for the sake of argument that your car's total price comes to pounds 10,000. You will have to pay tax on 35 per cent of that figure a year, a sum that the Revenue refers to as your car benefit charge (CBC). In this case, your CBC would be pounds 3,500.

Tax is charged at your marginal rate of income tax: 25 per cent basic rate or 40 per cent for higher-rate taxpayers.

There are various ways this bill can be reduced. If you make a contribution towards the cost of the car yourself, this reduces the list price pound for pound, so reducing the value of the car on which the CBC is calculated.

Your CBC will also depend on how many business miles you do. If you do between 2,500 and 17,999 miles a year on business then you can cut your CBC by one-third. If you do 18,000 business miles a year or more then you can lop two-thirds off your CBC. Where the car is available to you for only part of the year, these mileage limits are reduced in proportion. Business travel includes any journey that you must make in order to carry out your work but does not include your journeys between work and home. If your car is worth pounds 20,000 then jumping from one mileage band to the next could save you as much as pounds 934 a year in tax.

If you change your company car half-way through the tax year you should be particularly careful. Leslie Ferrar, a tax partner at KPMG, says: "You've got to make sure you've done the pro rata amount of miles in each car. Typically people tend to back-end-load their mileage so you'll find that the first nine months they do nothing, then in the last three months they do their 2,500 business miles. But if you do that and you change your car six months into the year you may find for the first half of the year you've got no business mileage at all, in which case you'll pay the full tax charge on those six months."

If your car is four years old or more at the end of the tax year you can take another third off the CBC as it stands after the deduction for business mileage.

Should your car be due for a change around the end of the tax year it may well be worthwhile making sure you take delivery before 6 April, as that will bring forward the date at which you can make the four-years- old deduction by a full 12 months.

Some employees pay their employer a charge for private use of the car, and these payments can be deducted from the CBC before calculating the tax due. But you should make sure that the fact you are making these payments is clearly set out in the agreement with your employer. Mr Ferrar says: "There's just been a special Revenue commissioners' decision where someone was paying some money for the private use of a company car. They didn't have that clause in and were unable to deduct it."

If your employer also provides you with free fuel for private motoring as part of your company car deal, then you will also have to pay tax on that. The taxable value of this benefit will depend on the size of your car's engine and whether it runs on petrol or diesel fuel. As with the CBC calculations you pay tax on these amounts at your marginal rate of income tax.

These rules have cut the benefits of company car ownership. More and more people will find they may be better off running their own car and taking a salary increase instead of accepting a company car.

This applies particularly if your business mileage is low. Some employers will help employees running their own cars by arranging company-wide insurance schemes or other benefits to reduce the hassle of owning your own car.

David Oliver, a tax partner at Arthur Andersen, says: "The basic rule is don't regard a company car as something sacred. Think about what your company car is really doing for you, how much it is costing in tax terms, and whether there are better and more efficient ways of getting what you really want out of a car."


Car registered 3 April, 1990 with air-conditioning and alloy wheels. Annual business mileage of 3,000 miles.

List price including VAT: pounds 12,650

Delivery and number plates: pounds 363

Air conditioning: pounds 755

Alloy wheels: pounds 305

Price of car for tax purposes: pounds 14,073

CBC (35 per cent): pounds 4,926


Mileage allowance (one third): pounds 1,642

Leaving pounds 3,284


4yr old allowance (one third): pounds 1,095

Tax payable on: pounds 2,189

Tax at 40 per cent: pounds 876

Tax at 25 per cent: pounds 547

Source: Inland Revenue

Suggested Topics
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
people'I’d rather have Fred and Rose West quote my characters on childcare'
Life and Style
The new Windows 10 Start Menu
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?