Low-CO2 cars can be a 'win-win' situation

Simon Down, senior manager, global employer services, Deloitte LLP

The current company car tax system can provide a strong financial incentive to ‘go green’ and yet many businesses, and their employees, are not making the most of this opportunity.

When I speak to employees, the consensus is that company car tax can be confusing to quantify because of the number of moving parts. Not many people realise the broad brush rule of ‘greener is usually cheaper’ is a good bet.

When you look at the petrol or diesel engine cars available today, company car tax rates start at 10% and 13% respectively if CO2 emissions are 120g/km or less (the emissions threshold will reduce to 99g/km or less from April 2012).

Increase CO2 emissions by just 1g/km over this threshold and the employee’s company car tax bill will rise by as much as 33%.

If emissions rise to 150g/km, the level of many typical mainstream saloons, then company car tax costs for employees could have doubled when compared to the starting rate.

If you take the point of view of employers, the financial implications of poor car choice around CO2 emissions becomes a much bigger issue when you have a whole car fleet to consider.

The key CO2 threshold to consider is 160g/km. Cars above this limit suffer from a less beneficial corporation tax treatment compared to those below it, and the end result can be a more expensive company car fleet.

Add in cost implications for business fuel and employers’ National Insurance, both of which can be related to CO2 emissions, and the financial opportunity for employers can be very significant.

From numerous years of experience, and as a bit of a petrol-head myself, I know that car choice is a very emotive issue with employees.

So trying to unlock the tax advantages of low-emission cars can be a tricky task and getting it wrong can lead to an ineffective fleet from both the employee’s and employer’s perspective.

However, with ongoing developments in manufacturer technology, reducing CO2 emissions doesn’t have to mean reducing choice and with the tax advantages for everyone involved, it can be a ‘win-win’ situation.