There's mileage in tax savings

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The Independent Online
The tax you pay on a company car is determined by the manufacturer's list price of the car on the day it is registered, including VAT, delivery and number plates and any enhancements worth pounds 100 or more. The taxable value is initially 35 per cent of the list price. Therefore, on a car listed at pounds 14,000, you would be taxed as if you received an extra pounds 4,900 in pay.

That figure is reduced by anything you pay towards the costs. More significantly, it is reduced if you drive between 2,500 and 17,999 business miles - you knock one-third off the taxable value. And you knock off two-thirds if you drive 18,000 or more business miles. Thus, a taxable value of pounds 4,900 could be reduced to pounds 3,267 (one-third off) or pounds 1,633 (two-thirds off). A further third is lopped off these figures if the car is over four years old by the end of the tax year. If this applies, the taxable value of a pounds 14,000 car would be pounds 3,267, pounds 2,178 or pounds 1,089, depending on your business mileage.

So, a higher-rate taxpayer with a brand new pounds 14,000 car who drives fewer than 2,500 business miles (or, indeed, no business miles at all) would have a tax bill of pounds 1,960 - 40 per cent of pounds 4,900. But if the car is more than four years old and covers 18,000 business miles, the tax bill would fall to just pounds 435 - 40 per cent of pounds 1,089.

If you get any fuel for personal use paid for by your employer, you are taxed on an extra fixed amount, between pounds 640 to pounds 1,320, depending on the engine size and whether you get petrol or diesel.

There is no tax to pay on a company car or fuel if you earn less than pounds 8,500 a year. Employees with this level of salary rarely have a company car. But they may have private use of a company van. In this case, you pay tax on a notional benefit of pounds 500, or pounds 350 if the van is over four years old (but no tax if the van is more than 3.5 tonnes).