If you drive a company car you need to keep an eye on the tax you pay for using the vehicle, as this is likely to increase from year to year.
The tax charge is based the car's CO2 emissions and its price.
An average car has CO2 emissions of around 160g/km, which means for a petrol car the driver is taxed on 20% of the vehicle's list price every year. This percentage will increase to 21% from 6 April 2010, and will be 22% from 6 April 2011.
The list price is the show-room price for the car, not what your employer actually paid including discounts. Currently the list price used for the tax calculation is capped at £80,000, but from 6 April 2011 this cap is removed. This will hit drivers who get their own companies to pay for top range cars.
Say you drive a Bentley Azure costing around £245,000, which has high CO2 emissions. In 2009/10 you are taxed on £28,000 (35% x £80,000). At the 40% tax rate this amounts to a tax bill of £11,200. From April 2011 you will be taxed on £85,750 (35% x £245,000). At the top tax rate of 50% that will apply in 2011/12, this will produce a tax bill of £42,875!
If you are drive an alternative fuel car, such as a hybrid, bio-fuel, or E85 fuel, currently you get a reduction in the tax charge compared to normal cars. This discount disappears from 6 April 2011 for all alternative fuel cars, except for pure electric cars, which will still be taxed on 9% of their list price.
The message is clear : get that expensive car out of your company soon, and if you must drive a company car, it may be time to start thinking electric, or at least very low CO2 emissions.
A blog providing UK tax information and planning ideas from John Pointon, Accountant, Business and Tax Consultant. Please send any suggestions for topics you would like to see covered to me at jpointon@gmail.com or 34 Lightley Court, Sandbach, Cheshire, CW11 4QA or phone 01270 763 466.
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