But hurry, it won’t be around for long
Company cars are wonderful things. But, for the ‘lucky’ recipients, the joy can sometimes be shortlived: the gloss can be taken away by some quite horrendous tax bills.
In this article, we give a brief round-up of what has been happening on the company car scene over the past year. Some of it is good, some bad. Happily though, no matter what, the opportunity for inventive planning to reduce company car tax bills remains untouched.
We start with a recent tax dispute.
What the Revenue said about the camper van...!
What is a car?
In a benefit-in-kind case heard at the end of last summer, a company argued that a vehicle which is provided to its managing director did not count as a "car" within the meaning of the company car tax regime. The Revenue, unsurprisingly, argued otherwise: they said that it did fall within the regime, and that accordingly the director had to pay a hefty company car tax charge.
The vehicle at the centre of the dispute was a motor home. It was used primarily as a mobile office, although there was some private use of it too. The company had already agreed with the VAT office that, for VAT purposes, the vehicle was to be treated as a van, and not as a car.
It would therefore seem reasonable, the company said, for the vehicle to be treated as a van for benefitin- kind purposes too. (The tax charge for company vans is very much lower than that for company cars.)
Reasonable, yes. But here, "reasonable" wasn’t good enough.
The ruling went the Revenue’s way: the motor home did count as a car for benefit-in-kind tax purposes. It was held that
- under the benefit-in-kind rules, the company car tax charge applies to most mechanically-propelled road vehicles;
- there are some exceptions of course: goods vehicles, motor cycles and invalid carriages are excluded, and lastly (and more to the point here) so is "a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used"; but
- none of these exceptions — not even the last one — applied to the managing director’s motor home.
So the motor home was a car. It was a leisure vehicle — a vehicle of a type "commonly used as a private vehicle, and suitable to be so used".
In summary then, anyone provided with a company motor home can expect to pay tax on it as a company car. Sad, but there it is.
However, there’s a paradox here. The dispute dated back to around 2002. The motor home, for Customs & Excise (VAT) purposes was a van, but for Inland Revenue (income tax purposes) it was a car.
Two different government departments, two different decisions.
Let’s now move forward, and consider what happened a few months back. In the middle of 2005 the two departments became one (HM Revenue & Customs)!
Does this mean that we are to have the crazy situation where the same department treats the same vehicle sometimes as a car and sometimes as a van? We fear so.
Save tax and help the environment
Now to something a little more cheerful.
Improved mileage allowances.
When an employee provides fuel for business journeys in his company car, he can receive a mileage allowance from his employer to cover this cost. The Revenue have published "advisory fuel rates": provided that the payments to employees do not exceed these rates, they can be received tax-free. The rates had remained static since January 2002 but, as from 1 July 2005, they have been revised. The revision — an upwards one — only affects larger cars but, as they say, every little helps.
For cars with engines over 2000cc, the rates per mile are:
| Now | Previously | |
| Petrol | 16p |
14p |
| Diesel | 13p |
12p |
For smaller cars, the rates remain unchanged. But if you have a larger car, make sure you receive these increased "tax-free" allowances.
Extra tax relief for the company.
Here’s a relief which, although it is not new, has now become much easier to qualify for. Since 2002, a car with very low carbon dioxide emissions — not more than 120 gm/km — has qualified for the 100% first-year allowance. At the time, there were few such cars on the market, but now there are many more — some produced by manufacturers at the "quality" end of the market, such as Audi and Mercedes.
The extra tax relief for energy-efficient cars can be substantial. For example, a car costing £15,000 will normally attract a tax depreciation allowance (a "capital allowance") of just £3,000 in the year of purchase. But if it qualifies as an energy-efficient car, the full £15,000 can be written off against tax — in one "hit".
But hurry — this "special offer" from the Revenue is due to expire in two years time (namely after 31 March 2008)!
And finally...
Tax planning for executives
... a reminder that, if you are an executive
suffering an uncomfortably high company car tax charge — it doesn’t necessarily need to be like that.
Try our "universal tax plan" for company car drivers — the one we explained in the September 2005 issue of Finance Confidential. For example, if your company car cost £20,000 when new, you can reduce your tax charge each year by as much as 25%. Even better, the smaller the car the greater the savings — if it cost only £10,000 when new, your annual tax charge can be halved!
These days, with a bit of planning, you can drive a coach and horses through the company car tax regime.
Robert Bond has been a practising chartered accountant for 20 years.
P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.
