Budget 2012 – Benefits

Company Car Tax Rates

Budget 2012 saw the Government confirming its intention to follow successive Budgets and impose higher taxes on the more polluting cars.  This has had the desired effect of ensuring that cars are now manufactured as more fuel-efficient.  There were a number of changes:

2011/12

The Chancellor confirmed his intention to exclude certain security enhancements from being treated as accessories, which increased the List Price of the car for taxable benefit purposes.  The term ‘accessories’ made no distinction between a set of alloy wheels and a feature added for the purposes of providing security – armour plating, bullet-proof glass etc.  The unintended impact of this was that an employee may have an increased taxable benefit as a result of security accessories that were necessary for employment.

The Finance Bill 2012 contains legislation, retrospective to 06 April 2011, which will add the cost of the following features to the section of excluded accessories:

• Armour plating
• Bullet-resistant glass
• Modifications to the car fuel tank, protecting it from explosion
• Any modification or enhancement necessary as a result of having made the previous three features

The legislative change will add Section 125A ‘security features not to be regarded as accessories’ into the Income Taxes (Earnings and Pensions) Act 2003.

2013/14

• The 100% ‘low emission’ capital allowance will be extended for 2 years until April 2015, however, this will only apply to cars with CO2 emissions less than 95g/km rather than the current 110g/km.  This capital allowance currently allows the cost of capital assets to be ‘written down’ and offset against a company’s taxable profits.  However, the Chancellor announced that the option to use this 100% write down in the first 12 months accounting period would only be available for companies and NOT leasing companies.  This could mean that it is more beneficial for a company to purchase the car itself rather than through the use of a leasing company
• The main business car capital allowances also saw reductions to the qualifying emission thresholds ‘to strengthen the environmental incentive for businesses to purchase fuel efficient cars’

2014/15

• From April 2014, the appropriate percentage of the List price subject to tax will increase by one percentage point for cars emitting more than 75g/km of CO2 to a maximum of 35%

2015/16

• From April 2015, the appropriate percentage of the List price subject to tax will increase by two percentage points up to a maximum of 37%
• The five year exemption for zero carbon and ultra-low carbon emission vehicles (as legislated in the Finance Act 2010) will cease.  The appropriate percentage for zero emission and all low carbon cars emitting less than 95g/km of CO2 will be 13%

2016/17

• From April 2016, the appropriate percentage for zero emission and all low carbon cars will increase by two percentage points
• The appropriate percentage of the List price subject to tax will again increase by two percentage points up to a maximum of 37%
• The 3% diesel supplement will be removed.  Diesel cars will be subject to the same level of tax as petrol cars

Comment

We have to wait until P11D submissions in July 2017 until we are rid of the diesel supplement altogether.  By this time, based on Budget 2012 announcements, the maximum percentage for all cars will be 37%.

The incentive is increasing for getting a greener company car.  However, the exemption for zero and low emitting cars will have passed and they will also be subject to the P11D.  That seems to be a confusing message to be sending out.

Car Fuel Benefit Charge 2012-13 and 2013-14

Employees are directors who are provided with a company car and also receive fuel which is available for private use are subject to tax via the P11D on the value of the Fuel Benefit Charge (FBC).  The Chancellor announced that this scale charge will increase from £18,800 to £20,200 with effect from April 2012.  This will apply to the tax year 2012/13.  The scale charge will apply to fuel provided for all cars with the exception of zero emission cars.

The Car Fuel Benefit Order 2012 was laid before the House of Commons on 23 March 2012 and effective 02 April 2012.  This amends Section 170 (5) the Income Tax (Earnings and Pensions) Act 2003.

In 2013/14, i.e. effective April 2013, the scale charge will increase by 2 percentage points above the Retail Prices Index (RPI).

The Chancellor also committed to providing the FBC one year in advance in future.

Comment

We welcome the advanced knowledge of the FBC and the indication that it will be calculated as RPI +2% in future years.  We assume that it will be the RPI as at the preceding September – i.e. September 2012’s RPI will enable the calculation of the scale charge for 2013/14.

Further Information

• Legislation – The Car Fuel Benefit Order 2012

Van Fuel Benefit Charge 2012-13 and 2013-14

As with the car, the van FBC applies in the circumstances where fuel is provided for private use and that private use is not wholly reimbursed by the employee or director.  The Chancellor announced that this scale charge will be frozen at its current level of £550 with effect from April 2012 and will apply to the tax year 2012/13.

In 2013/14, i.e. effective April 2013, the scale charge will increase by the Retail Prices Index (RPI).  As with the car FBC, there is a commitment to providing the van FBC one year in advance in future.