Background Note
8.Where a company car is available for private use, a tax charge arises on the benefit in kind of the provision of the car. The employer calculates the benefit by reference to the list price and the CO2 emissions of the car. The level of CO2 emissions identifies the appropriate percentage, which starts at 15 per cent. This increases by 1 per cent for every increase in 5g/km of CO2 emissions above the lower threshold up to a maximum of 35 per cent, subject to reductions given by regulations made by HM Treasury. The lower threshold is set in the legislation for the relevant tax year. In broad terms, the list price is then multiplied by the appropriate percentage to find the cash equivalent of the benefit.
9.To promote environmentally friendly driving, FA 2006 introduced a special lower appropriate percentage of 10 per cent for qualifying low emission cars effective from April 2008. These are cars that emit 120g or less of CO2 per km driven.
10.A 3 per cent supplement is added to the appropriate percentage for diesel cars, though this is disregarded for cars approved to Euro IV emissions standards and registered before that standard became mandatory on 1 January 2006.
11.Reductions to the appropriate percentage apply for alternatively fuelled vehicles such as hybrids, bi-fuel and electric cars.
12.Currently, when calculating the cash value of the car benefit, the list price is capped at £80,000.
13.This section and Schedule make three main changes. Firstly, they abolish the price cap of £80,000 so that drivers of expensive company cars pay a fair amount of tax.
14.Secondly, they reduce the lower threshold from 130g/km to 125g/km of CO2. This reduction means that the 15 per cent appropriate percentage will now apply to all company cars with CO2 emissions between 121g and 129g/km. The reduction will come into force from 6 April 2011. Since the reforms to company car tax took effect in April 2002, the lower threshold has been set two years in advance. This is to provide certainty to employers and company car drivers when making decisions on new cars and to encourage car users to drive more environmentally friendly vehicles.
15.Thirdly, they simplify the way drivers of electrically propelled cars arrive at the appropriate percentage. Currently the percentage applicable to electrically propelled cars is 9 per cent, but this is achieved through a mix of primary and secondary legislation. Drivers of such cars will continue to pay tax on 9 per cent of the list price of the car, but this rate will in future be set out only in primary legislation.
