Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN52 Company car and fuel benefit tax

Who is likely to be affected?

1   Employees provided with a company car available for their private use and employees who are provided with a company car who receive free fuel for private travel. Employers who bear Class 1A National insurance on the taxable benefit of providing a car and any fuel for it.

General description of the measure

2   A Treasury order will be laid before Parliament, before the summer recess, to introduce a 2% discount for company car drivers who drive a car which is capable of being run on E85 fuel.

3   The company car fuel figure for 2007/08 will be maintained at the current level.

Operative date

4   The company car fuel multiplier will have effect on and after 6 April 2007. The company car tax E85 discount will have effect on and after 6 April 2008.

Current law and proposed revisions

Company car tax

5   Where a car is made available for an employee's private use, a taxable benefit arises under sections 114 and 120 Income Tax (Earnings and Pensions) Act 2003 (ITEPA). Company car tax was reformed in April 2002 and is now calculated by applying the appropriate percentage to the list price of the car. The appropriate percentage is related to the CO2 emissions of the car and ranges from 15% - 35% (in 1% increments) for a petrol car. Most diesel cars attract a 3% supplement on petrol percentages (capped at 35%). Cars that can be driven on alternative fuels, such as Liquified Petroleum Gas (LPG) attract a discount from the appropriate percentage rate

6   On and after 6 April 2008, there will be a 2% discount from the appropriate percentage rate for cars that have been manufactured to run on E85 fuel.

Company car fuel benefit tax

7   An additional taxable benefit arises under section 149 of ITEPA 2003 if the employee receives free or subsidised fuel for private use in a company car. The company car fuel benefit tax charge was reformed in April 2003 to align with the environmental principles of the company car tax system. Since April 2003, the fuel benefit charge has been calculated by applying the company car tax appropriate percentage to a set figure known as the multiplier. In 2006/07 the multiplier was 14,400. For 2007/08 the multiplier figure for the company car fuel benefit tax charge will be frozen at 14,400.

Further advice

8   If you have any questions about this change, please contact the Employer Helpline on 0845 7143 143 or your local Enquiry Office (see telephone directory for details). Information about Budget measures is available on the HMR Revenue & Customs website at www.hmrc.gov.uk