Budget Notes

BN69 COMPANY CAR BENEFIT TAX

Who is likely to be affected?

1. Employees provided with a car that is available for their private use, and employers who pay Class 1A National Insurance contributions on the taxable benefit of a company provided car.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to set the rates of company car tax charge for 2010-11 and subsequent years.

Operative date

3. This measure will have effect on and after 6 April 2010.

Current law and proposed revisions

4. Where a car is made available for an employee's private use, a taxable benefit arises under sections 114 and 120 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).

5. Company car tax is calculated by applying a percentage to the list price of the car. The percentage is related to the CO2 emissions of the car and ranges from 15 per cent to 35 per cent in 1 per cent increments for a petrol car. Most diesel cars attract a 3 per cent supplement on petrol percentages (also capped at 35 per cent). A new lower rate of 10 per cent for cars with CO2 emissions of exactly 120 grams per kilometre or less (13 per cent for most diesels) will have effect on and after 6 April 2008.

6. The CO2 emissions figure which determines the 15 per cent rate for petrol cars (the lower threshold) has been set as follows:

•    2008-09: 135 grams per kilometre of CO2; and

•    2009-10: 135 grams per kilometre of CO2.

7. From 2010-11 the lower threshold will be reduced by 5g/km to 130 g/km.

Further advice

8. If you have any questions about this change, please contact the Employer Helpline on 0845 7143 143 or your local HMRC office. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk