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Accountants Advise Businesses to Think Again On Company Cars

Businesses and employees need to be looking again at their company car arrangements to make sure that they are as cost-effective as possible, say Surrey accountants TWP Accounting LLP.

The government’s emphasis on reducing carbon dioxide (CO2) emissions is having an increasing impact on company cars, which are driven by more than one million UK employees and directors and contribute more than their fair share of CO2 emissions, due to their generally high mileage. Taxes paid for the benefit of having a company car, and on any free or subsidised fuel provided for private use in such cars, take into account CO2 emissions, with the lowest emitting vehicles attracting the lowest taxes.

TWP partner Mike Dawes says: “Businesses and company car drivers need to be looking at the costs and benefits of such cars to find the most tax-efficient options.

“For example, rising fuel prices may mean that many company car drivers could be better off if their employer will provide free or subsidised fuel for their private use, as the tax charge the employee pays for this benefit could work out less than paying for the fuel for their own private mileage.

“However, someone who rarely uses their company car for private purposes, but receives free or subsidised fuel for this, could be better off giving up that benefit and paying for their own fuel, particularly if their car is at the top end of the CO2 emissions league table.”

Meanwhile, the taxman has acknowledged the steep hike in fuel prices with an increase in the advisory fuel rate – the technical term payable to company car drivers for business mileage. The rate officially rises from 1 July, although HM Revenue & Customs had acknowledged the impact of rising prices on drivers by allowing them to pay the new rates from 1 June. The new rates are:

Engine size

Petrol

Diesel

LPG

1400cc or less

12p (11p)

13p (11p)

7p (7p)

1401cc – 2000cc

15p (13p)

13p (11p)

9p (8p)

Over 2000cc

21p (19p)

17p (14p)

13p

Businesses also need to be aware of new capital allowances – a form of annual tax relief – on company vehicles that came into effect in April 2008, again designed to make cars with lower CO2 emissions more attractive. Under the rules, vehicles with CO2 emissions of less than 160g per km will attract twice the tax relief of those with higher emissions. Cars with CO2 emissions of below 110g per km will attract a 100% first year allowance – which means the whole cost of the vehicle can be deducted from the company’s profits before tax is calculated.  Whilst  these vehicles are likely to be considered too small for business travel, they may be appropriate for family use.  Low emission vehicles also qualify for favourable car benefit rates.

Mike Dawes says: “However, there are many different models available in this range and for some businesses, choosing a small car could make perfect sense. From 27 October 2008, cars emitting less than 120g of CO2 per km, and which also meet the strict Euro 4 pollution emissions standard, will become exempt from the London congestion charge, which may be another advantage to have one of these.

“Company car tax issues are a complex area, so any business that wants their schemes to make the best sense financially would be wise to seek advice from a qualified professional, such as an accountant.”

For further information, please contact TWP on 01932 704 700.

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