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Are company cars still worth it?

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Published: 12 Dec 2012      

On April 1 2012, the bands for company car tax bands shifted. This means the majority of company car drivers will have to pay more Benefit-in-Kind tax. However, some will take a bigger hit than others since some of the bands see a far more dramatic shift. There are also meaner deductions for the employers providing them, is now the time to close the door on these arrangements?

How does company car benefit in kind tax work?

The official CO2 figure for the car (measured in grams per kilometre (g/km)) is converted to a percentage multiplier, applied to the list price for tax purposes to determine the taxable benefit charge for the year.

Changes for 2012/2013

Driver of low CO2 cars who qualify for a 10%-of-list-price benefit in kind charge up to 5 April 2012, will see a big hike in their car tax bill in next couple of years:

 

Cars that are zero-rated for CO2 retained their exemption from company car tax, while those that emit 1-75g/km continue to be taxed at 5%.

However, the previous 76g-120g/km bracket with a 10% BIK charge, has been split into five sections.

•  76 -  99g/km = 10% 
• 100-104g/km = 11% 
• 105-109g/km = 12% 
• 110-114g/km = 13%
• 115-119g/km = 14%

The 3% surcharge for diesel cars remains, although no car will be liable for more than 35% tax. 

Beyond April 2013

Most tax bands will rise by 1% for each year up to 2016 but it’s not a general rule since there are tax band changes.

Company car providers  

buyers

Until April 2013, companies can claim 18% capital allowances for cars with CO2 emissions less than 160 g/km but only 10% for cars emitting more.  After that date the tipping point for CA’s will be 130g/km.

Company car providers

renters/leasers

For businesses which rent or lease their company cars, there’s a similar charge to that for the buyers. Until April 2012 a full tax deduction is allowed for the cost of renting/leasing charges for cars with CO2 emissions up to 160g/km, but those with higher emissions can only claim 85% of the cost. From April 2013 this cut-off point for the restriction will be 130g/km

In summary

Company cars will still be a tax efficient alternative to salary for employees. But director/shareholder who drives company cars must take in account of the tax and NI increases for both the business and themselves. Use the help on following website to calculate your current CO2 bands.   

http://carfueldata.direct.gov.uk/search-company-car-tax.aspx

 

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