Provision of a company motor car
When an employee is provided with a company motor car, then the taxable benefit is calculated as a percentage of the motor car’s list price. The percentage is based on the level of the motor car’s carbon dioxide (CO₂) emissions.
List price: Any discounts given to the employer are ignored. The employee can reduce the figure on which his or her company car benefit is calculated by making a capital contribution of up to £5,000.
Percentage: The base percentage is 18%, and this applies where a motor car’s CO₂ emissions are at a base level of 95 grams per kilometre. The percentage is then increased in 1% steps for each five grams per kilometre above the base level, subject to a maximum percentage of 37%.
There are lower rates for company motor cars with low CO₂ emissions:
- For a motor car with a CO₂ emission rate of 50 grams per kilometre or less the percentage is 9%.
- For a motor car with a CO₂ emission rate of between 51 and 75 grams per kilometre the percentage is 13%.
- For a motor car with a CO2 emission rate of between 76 and 94 grams per kilometre the percentage is 17%.
Diesel cars: The percentage rates (including the lower rates of 9%, 13% and 17%) are increased by 3% for diesel cars, but not beyond the maximum percentage rate of 37%.
Reduction: The taxable benefit is proportionately reduced if a motor car is unavailable for part of the tax year.
Contribution: Any contribution made by an employee towards the use of a company motor car will reduce the taxable benefit.
Pool Cars: The use of a pool car does not result in a company car benefit. A pool car is one that is used by more than one employee, that is used only for business journeys (private use is only permitted if it is merely incidental to a business journey), and where the motor car is not normally kept at or near an employee’s home.
Related benefits: The motor car benefit covers all the costs associated with having a motor car such as insurance and repairs. The only cost that will result in an additional benefit is the provision of a chauffeur.
EXAMPLE 9
During the tax year 2017–18, Fashionable plc provided the following employees with company motor cars:
Amanda was provided with a new petrol powered company car throughout the tax year 2017–18. The motor car has a list price of £12,200 and an official CO₂ emission rate of 84 grams per kilometre.
Betty was provided with a new petrol powered company car throughout the tax year 2017–18. The motor car has a list price of £16,400 and an official CO₂ emission rate of 109 grams per kilometre.
Charles was provided with a new diesel powered company car on 6 August 2017. The motor car has a list price of £13,500 and an official CO₂ emission rate of 137 grams per kilometre.
Diana was provided with a new petrol powered company car throughout the tax year 2017–18. The motor car has a list price of £84,600 and an official CO₂ emission rate of 208 grams per kilometre. Diana paid Fashionable plc £1,200 during the tax year 2017–18 for the use of the motor car. Diana was unable to drive her motor car for two weeks during February 2018 because of an accident, so Fashionable plc provided her with a chauffeur at a total cost of £1,800.
Amanda
The CO₂ emissions are between 76 grams and 94 grams per kilometre, so the relevant percentage is 17%. The motor car was available throughout 2017–18, so the benefit is £2,074 (12,200 x 17%).
Betty
The CO₂ emissions are above the base level figure of 95 grams per kilometre. The CO₂ emissions figure of 109 is rounded down to 105 so that it is divisible by five. The minimum percentage of 18% is increased in 1% steps for each five grams per kilometre above the base level, so the relevant percentage is 20% (18% + 2% ((105 – 95)/5)). The motor car was available throughout 2017–18, so the benefit is £3,280 (16,400 x 20%).
Charles
The CO₂ emissions are above the base level figure of 95 grams per kilometre. The relevant percentage is 29% (18% + 8% ((135 – 95)/5) + 3% (charge for a diesel car)). The motor car was only available for eight months of 2017–18, so the benefit is £2,610 (13,500 x 29% x 8/12).
Diana
The CO₂ emissions are above the base level figure of 95 grams per kilometre. The relevant percentage is 40% (18% + 22% ((205 – 95)/5)), but this is restricted to the maximum of 37%. The motor car was available throughout 2017–18, so the benefit is £30,102 (31,302 (84,600 x 37%) – 1,200). The contribution by Diana towards the use of the motor car reduces the benefit. The provision of a chauffeur will result in an additional benefit of £1,800.
If fuel is provided for private use, then there will additionally be a fuel benefit. This is also based on a motor car’s CO₂ emissions.
Base figure: For the tax year 2017–18 the base figure is £22,600.
Percentage: The percentage used in the calculation is exactly the same as that used for calculating the related company car benefit.
Reduction: The fuel benefit is proportionately reduced if a motor car is unavailable for part of the tax year.
The fuel benefit can also be proportionately reduced where the fuel itself is only provided for part of the tax year. However, it is not possible to opt in and out depending on monthly use. If, for example, fuel is provided from 6 April to 30 September 2017, then the fuel benefit for the tax year 2017–18 will be restricted to just six months. This is because the provision of fuel has permanently ceased. However, if fuel is provided from 6 April to 30 September 2017, and then again from 1 January to 5 April 2018, then the fuel benefit will not be reduced - the cessation was only temporary.
Contribution: No reduction is made for contributions made by an employee towards the cost of private fuel unless the entire cost is reimbursed. In this case there will be no fuel benefit.
EXAMPLE 10
Continuing with example 9.
Amanda was provided with fuel for private use between 6 April 2017 and 5 April 2018.
Betty was provided with fuel for private use between 6 April 2017 and 31 December 2017.
Charles was provided with fuel for private use between 6 August 2017 and 5 April 2018.
Diana was provided with fuel for private use between 6 April 2017 and 5 April 2018. She paid Fashionable plc £600 during the tax year 2017–18 towards the cost of private fuel, although the actual cost of this fuel was £1,000.
Amanda
The motor car was available throughout 2017–18 so the fuel benefit is £3,842 (22,600 x 17%).
Betty
Fuel was only available for nine months of 2017–18, so the fuel benefit is £3,390 (22,600 x 20% x 9/12).
Charles
The motor car was only available for eight months of 2017–18, so the fuel benefit is £4,369 (22,600 x 29% x 8/12).
Diana
The motor car was available throughout 2017–18, so the fuel benefit is £8,362 (22,600 x 37%). There is no reduction for the contribution made because the cost of private fuel was not fully reimbursed.
The employer is responsible for paying class 1A NIC in respect of taxable benefits at the rate of 13.8%.
EXAMPLE 11
Continuing with examples 9 and 10.
The total amount of taxable benefits for 2017–18 is £59,829 (2,074 + 3,280 + 2,610 + 30,102 + 1,800 + 3,842 + 3,390 + 4,369 + 8,362), so Fashionable plc will have to pay class 1A NIC of £8,256 (59,829 at 13.8%).
Use of own motor car
Employees who use their own motor car for business travel must use HMRC’s authorised mileage allowances in order to calculate any taxable benefit arising from mileage allowances received from their employer. Employees who use their motor cars for business mileage without being reimbursed by their employer (or where the reimbursement is less than the authorised mileage allowances), can use the authorised mileage allowances as a basis for an expense claim.
The rate of authorised mileage allowance for the first 10,000 business miles is 45p per mile, and for business mileage in excess of 10,000 miles the rate is 25p per mile.
Unlike other taxable benefits which are subject to class 1A NIC, any taxable benefit arising from mileage allowances is treated as earnings subject to both employee and employer’s class 1 NICs.
EXAMPLE 12
Dan and Diane used their own motor cars for business travel during the tax year 2017–18.
Dan drove 8,000 miles in the performance of his duties, and his employer reimbursed him at the rate of 60p per mile.
Diane drove 12,000 miles in the performance of her duties, and her employer reimbursed her at the rate of 30p per mile.
Dan
The mileage allowance received by Dan was £4,800 (8,000 at 60p), and the tax free amount was £3,600 (8,000 at 45p). The taxable benefit is therefore £1,200 (4,800 – 3,600).
The taxable benefit will be included as part of Dan’s taxable income. It will also be subject to both employee and employer’s class 1 NICs.
Diane
Diane can make an expense claim of £1,400: