In order to protect the environment, changes have already been made to increase the tax charges on company cars. There are those that have applied since 6 April 1999 and those that will apply from 6 April 2002. These are explained in detail in the Appendix.
In addition to these changes the Chancellor has proposed further changes to encourage a “greener” environment to take effect from 2003/04. These prospective changes are to the fuel scale and, like the company car charge, will be calculated based on the level of CO2 emissions from the care with a 3 per cent supplement for diesels and a discount for alternative fuelled cars.
The percentages for petrol and diesel range from a minimum of 15 to a maximum of 35 per cent. The percentage for alternative fuels and hybrid cars can be below 15 per cent with discounts. This same percentage figure will be used to calculate the tax and Class 1A National Insurance contributions due on both car and fuel benefits. To calculate the tax due on free fuel the percentage figure will be multiplied against a set figure for the year.
Where an employee opts out of free fuel during the tax year, it is proposed that they will be entitled to pay only the proportion of the full annual tax charge related to the part of the year in which they received free fuel. The amount of Class 1A NICs due will also be proportionally reduced. However, opting back into free fuel later in the same tax year will result in a full year's tax and Class 1A NICs charge becoming due.
In 1999 the government introduced relief from tax (and NIC) where employers provided transport for employees between home and work. Without this relief the provision of such transport would lead to a benefit in kind tax charge on the employees and NIC on the employer. Specifically the relief applied where works buses with a seating capacity of 12 or more. As originally announced last year a relaxation will apply so that the relief is extended to the provision of transport in minibuses with at least 9 passenger seats.
Whilst this change has already been introduced, as it only took effect from 6 April 2002 we thought it worthwhile restating it.
The new system for free mileage rates allows a tax and NIC free amount for all cars and vans and does not take account of engine size. This amount is what an employer is able to pay up to per mile without generating a tax/NICs charge. Employers no longer need to report payments of mileage rates up to the statutory rate. Dispensations no longer apply to payments related to mileage rates paid for business travel.
Rates for 2002-2003
The tax and NICs free rates, which will apply from 6 April 2002, are as follows:
|Cars and vans:|
|On the first 10,000 miles in the tax year||40p per mile|
|On each additional mile over 10,000 miles||25p per mile|
|Motor cycles||24p per mile|
|Bicycles||20p per mile|
If employers pay less than the statutory rate, employees may claim tax relief up to that level. However, employees are no longer able to make a claim for tax relief based on actual receipted bills, claim capital allowances or interest on loans related to vehicle purchases.
The existence of the new statutory rates will not prevent employers paying higher rates if they choose to do so, but any amount paid in excess of the statutory rates will be liable to tax and NICs.
Employers are able, if they wish, to pay up to 5p per mile free of tax and NICs for each passenger carried. The passenger must be a fellow employee making the same business trip. This measure applies only where employers pay extra for carrying passengers. Where there are no payments for carrying business passengers, employees will not be able to claim any tax relief.