Mileage adds benefit to the company car

TAX PLANNING

USING a company car for business trips can knock a big chunk off the tax bill. But only for genuine business trips - private mileage makes no difference.

The taxable value of a company car is 35 per cent of the list price plus accessories. But this is reduced by one-third where between 2,500 and 16,000 business miles are driven during the tax year. And it goes down by two-thirds if more than 18,000 business miles are driven.

So if the list price is, for example, £17,142, the taxable value, at 35 per cent of that, is £6,000. Tax on £6,000 at 25 per cent is £1,500; at 40 per cent it is £2,400.

But the taxable value would fall to £4,000 once 2,500 business miles have been clocked up - reducing the tax to £l,000 for 25 per cent taxpayers and £1,800 for 40 per cent taxpayers.

On business mileage of 18,000 miles and over, the taxable value in this example would fall to £2,000 and the tax bill would be £500 (at 25 per cent) or £800 (at 40 per cent).

There are clearly significant potential tax savings for people who are close to either mileage threshold. Making a few more business trips before 5 April could be very profitable.

There is a further reduction of one-third in the taxable value if the car is at least four years old by the end of the tax year.

So think twice before urging your employer to replace your car with the latest model.