No U-turn on company cars' tax-efficiency

Contractors hoping Budget 2014 would see a U-turn on company cars to make them tax-efficient again will be disappointed, as the link to CO2 emissions was kept and the tax hiked.

In fact, the chancellor unveiled a 2% rise in both 2017/18 and 2018/19, meaning the regime, which calculates a car’s taxable benefit based on its emissions, will charge up to 37% in both years.

Applicable to all cars emitting more than 75g of CO2 per kilometre, the rise in rates and the 37% cap (to be put in place until April 2019) are widely seen as a continuation of state policy.

But Deloitte says many employers might be surprised at the chancellor’s decision to also hike rates on the drivers of company cars at the lower end of the emissions spectrum.

In particular, cars with emissions between 0-50 and 51-75g of CO2 per kilometre will see rates rise by 4% and 3% respectively in 2018-19, compared to the percentages for 2017-18.

As a result, employers are likely to encourage alternative methods for supporting employees using cars -- even those with lower emissions -- when travelling that do not include a company car.

Such journeys may relate to business-only travel, added Deloitte’s Mark Groom, or business trips with some private travel, which, where company cars are used, will be legislated against.

Specifically, and with effect from next month, legislation will be brought in to ensure drivers make payments for private use of a company car in the relevant tax year, says Budget 2014.

Since company cars ceased to be tax-efficient for them, contractors have been advised to own cars privately and then charge the taxman’s approved mileage allowance when using such vehicles for business.

Editor's Note: Further Reading -

Contractors' Quesitons: Does a company car beat owning it privately?

Company car usage 'collapses'

Why mileage claims for home-based office users are in doubt

Contractors' mileage log - free template

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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