Dan Rees, business car expert at Deloitte gives his expert views on the implications of the PBR for fleets.
Company cars: downwards revision of company car tax bands
The company car taxable benefit arising for an employee is based on the list price of the car multiplied by a percentage – with the relevant percentage depending on the car’s CO2 emissions.
Currently the lowest rate is 15% except if the car is a ‘Qualifying Low Emission Car (QUALEC)’ and has emissions of no more than 120g/km of CO2 – in which case the percentage is 10%.
From 6 April 2012, QUALECs will no longer exist as a separate category but the lowest 10% rate will be available for cars with emissions of no more than 99g/km of CO2.
The rate would be 11% for cars with emissions of 100g/km of Cos and the bands increase at 1% intervals for each additional 5g/km of CO2.
Company cars and vans: tax on receipt of free private fuel
Similarly, where an employee with a company car is provided with private fuel, the taxable benefit is based on the percentage above multiplied by a specified figure.
That figure is to be increased from £16,900 to £18,000 with effect from 6 April 2010.
Where an employee with a company van is provided with private fuel, a flat rate taxable benefit of £500 arises.
This figure is also to be increased from 6 April 2010 to £550.
Electric company cars and vans: zero tax on benefit of private use
The percentage figure used to calculate the benefit in kind of an electric car/van, or any free fuel associated with the electric car/van will be reduced to zero per cent from 6 April 2010 for five years.
As such, provision of an electric car or van during this period is effectively a tax free benefit.
Electric vans: 100% first-year capital allowances
Subject to confirming compatibility with the State Aid rules, legislation will be introduced to provide a 100% first-year allowance for business expenditure on new (not second hand) electric vans.
These allowances will apply to acquisitions made from April 2010.
Mike Moore, a director in the employment taxes group at Deloitte, commented:
“The announcement of tax breaks for electric cars and vans provided for employers has provided a shot in the arm for electric cars as employers can now provide a tax free benefit for employees with no employer National Insurance.
“We anticipate that further announcements will clarify whether an exemption to the fuel scale benefit will be available, where electricity is provided by the employer to charge electric vehicles which are then used for private journeys.
“This measure, in conjunction with the tightening of the emissions thresholds for benefit in kind tax and the increase in the fuel benefit tax, continues the trend by the government to use the tax system to encourage businesses and drivers to select greener low emission vehicles.
“This should provide a further incentive for employers to assess their current fleet policy and its true after tax cost and ensure they maximise the use of the tax incentives provided by the government.”
Free fuel implications
The increase in the fuel benefit scale rate from £16,900 to £18,000 in tax year 2010/2011 will have the effect of increasing the breakeven private mileage by 6.5% for an average 130g/km car and 10.5% for an average 180g/km car.
A basic rate taxpaying employee receiving free private fuel will have to travel more than approximately 6,570 private miles in the lower emitting car and 7,710 private miles in the higher emitting car for the tax cost of the benefit to be lower than the cost of the fuel used.
A higher rate taxpaying employee receiving free private fuel will have to travel more than approximately 13,140 private miles in the lower emitting car and 15,430 private miles in the higher emitting car for the tax cost of the benefit to be lower than the cost of the fuel used.
Looking forward to 2011/12, when the NI rates go up by a full percent across the board and assuming the £18,000 scale rate and the fuel price remains unchanged, the breakeven private mileage increases from current levels by 12.4% for an average 130g/km car and 14.4% for an average 180g/km car.
Even where the employee does benefit by taking free fuel, the employer is almost certainly better off by withdrawing the benefit and paying extra salary such that the employee is not left out of pocket."
Login to comment
Comments
No comments have been made yet.