Company cars – part 3
Do you save tax by having a company car
Car fuel taxable benefits and road fund tax
As we have explained in previous posts, the benefit in having a company car has been eroded over the years by increasing tax charges. In the third of this series, we look at fuel provided by your company and the tax implications. We will also explain the different road fund tax (“RFT”) charges.
Previously we explained how a tax charge is applied when a company provides you with a car. In order to raise more tax and make company cars less attractive, there is also a tax charge imposed when the company provides fuel for a company car. A director/employee who is provided with a company car and also receives free fuel from their employer is taxed on the cash equivalent of the benefit each tax year. The charge is fixed each year and is based on the emissions table we explained in last week’s email and blog.
The charge for 2017/18 is based on a fixed amount of £22,600 (2016/17 £22,200). The charge you pay on the fuel is related to the emissions of the vehicle provided.
Example 1
Take a low emission car with CO2 emissions less than 50 g/km. This could be a petrol car, but is more likely to be electric or hybrid. (A hybrid car is one that uses more than one means of propulsion. Commonly that means combining a normal petrol or diesel engine with an electric motor.)
At less than 50 g/km the scale rate that applies is 9%. That produces a charge on (£22,600 x 9%) £2,034.
The tax payable by a basic rate taxpayer at 20% is £406.80, and for a higher rate taxpayer at 40% £813.60.
Example 2
At the upper end, for a “guzzler” with emissions of 190 g/km and above the scale rate is a whopping 37%, producing a charge of £8,362.
The tax payable by a basic rate taxpayer is therefore £1,672.40 and at higher rates, £3,344.80.
Compare that with the cost of petrol! You can buy an awful lot of unleaded petrol for £1,672, let alone the higher amount. At say 25 m.p.g. and pump prices averaging maybe £1.20 per litre that is costing around 18p per mile in petrol alone. So you have to be doing over 9,300 miles a year before it becomes worth the company paying for your fuel. And that doubles to nearly 19,000 miles if you are a higher rate taxpayer!
If you have a company car but do not cover high mileage our advice is therefore that it is better to pay for the fuel yourself than suffer tax on the fuel benefit charge, as this can cost you more than the fuel provided.
And then there is Road Fund Tax. This is no longer a flat rate – far from it! And of course this applies whether it is your own car or a company car.
Cars registered on or after 01 April 2017:
There is a one off payment when you first register your car. There is a sliding scale Vehicle tax rates
You can see from this link that a 0 emission car suffers no initial RFT. A high emission petrol or diesel car, over 255 g/km, has RFT imposed of £2,000. This covers the first 12 months RFT.
As you can also see from the Vehicle tax rates table Second and subsequent years RFT is £140 for most cars. That increases to £450 for cars with a list price exceeding £40,000.
You will also see that there is a different table of rates that applies to cars registered before 31 March 2017, ranging from £0 up to £535.
As we have said before, it can sometimes still be tax efficient for you to be provided with a company car and we will continue to explore this over future articles.
For further advice existing clients email us at support@anytime.uk.com or call 03333 110 230
For new enquiries contact us now
Related Blog
Company cars – part 2
Company car benefit charges explained Do you save tax by having a company car? In the second of this series, we look at the tax position regarding the taxable benefit in kind charge on having a company car. It was not that long ago that it was very tax efficient to run a car through — Read more
