Cars with emissions below 120g/km currently qualify for the lowest benefit in kind charge of 10% (or 13% if diesel) of the list price. Until recently the cars on the list were relatively uninspiring. However, BMW have recently announced that their new 320d has emissions of 109g/km.

Its list price is around £28,000, which would give a taxable benefit of £3,640. For a 40% taxpayer this gives an annual tax charge of £1,456 – or £121 per month.

Other cars on the list which may be of interest are Volvo’s C30, S40 and V50 models, Volkswagen’s Golf (including the Estate version) and the Mini Cooper D.

Fuel benefit

If the employer pays for the fuel as well, a further benefit of £2,340 is taxable. For a 40% taxpayer the tax on this will be £936 per annum.

These cars are so efficient (with a combined efficiency of 68.9mpg) that the fuel cost of driving the average 12,000 miles per annum is approximately £900.

Therefore if you are doing more than about 12,000 private miles per annum it may well be worth paying the tax on the fuel benefit. This will of course depend on how efficiently you drive!

Tax breaks for the employer

For the employer providing the car there are further tax breaks.

As long as the car provided is new and the emissions are below 110g/km 100% capital allowances will be available in the first year. This means that the cost of the car can be written off against profits and immediate tax relief received.

If the employer leases the car instead then the lease payments will be deductible in full. The employer will be able to reclaim 50% of the VAT on the payment.

Other benefits

Annual car tax for a car with emissions of 110g/km is only £20. Compare this to a car with emissions of 256g/km where the car tax is £435.

There will also be no so-called car showroom tax – the car tax you pay in the first year of owning a car. Again, compare this to the tax due on a car with emissions of 255g/km of £950.

Taking it further?

A ‘car which cannot produce CO2 engine emissions under any circumstances when driven’ will not suffer a taxable benefit as the percentage used is 0%. This covers fully electric cars. A list of those available in the UK is here http://www.greencarsite.co.uk/electric-vehicles-cars.htm .

A new 5% band for cars with CO2 emissions of 75gm/km or less has been introduced. There are however no cars which currently fulfil this criteria, according to the Government’s own website above (other than fully electric cars).

Conclusion

More and more cars are likely to join the list as manufacturers seek to drive down emissions. The list of cars currently qualifying can be found at http://www.vcacarfueldata.org.uk/information/how-to-use-the-data-tables.asp .

The choice of car can have repercussions for many taxes. Company cars can be structured efficiently however with appropriate consideration. Please contact us if you would like to discuss this further.

Francis Clark has offices in Exeter, Plymouth, Salisbury, Taunton, Tavistock, Torquay and Truro. Francis Clark is the winner of the ‘Auditor of the Year - Mid Tier’ in the National Financial Directors’ Excellence Awards 2011, and LexisNexis Best General Tax Practice Award 2009. More information is available by logging on at our Online Information Centre