If you drive a company car you are taxed on a percentage of the vehicle’s original list price, set by reference to its CO2 emissions rating. This taxable benefit has increased over recent years and it will carry on rising every year until at least 2017.
Say your car has CO2 emissions of 157g/km. In 2012/13 the taxable benefit is 22% of its list price, but this rises to 23% in 2013/14, and increases by leaps every year to 28% in 2016/17. So although you don’t change your company car, and the vehicle actually loses value over time, you are taxed on a higher amount each year. This tax increase also applies to low-emissions cars, and even zero-emissions cars are taxed on 13% of the list price from 2015/16.
If you are thinking of changing your company car, look at the long term effects of this rising tax on the benefit. You may be better off owning the car yourself and claiming a mileage allowance for business journeys. Your employer can pay 45p a mile tax-free for up to 10,000 miles in a year (and 25p a mile after that). However, a comparison of company and private car also needs to take into account the costs of insurance, repairs, servicing, finance and leasing costs.
The taxable benefit of receiving fuel in your company car for private journeys is calculated using the same CO2-based percentage applied to a fixed figure (£20,200 for 2012/13, rising to £21,100 in 2013/14). For a powerful car you may pay more in tax on the fuel benefit than you would pay for fuel if you bought it yourself. Ask us to check the sums.