Reducing The Taxes
“There is no such thing as a good tax” – Winston Churchill
When you buy and run company cars and vans and other vehicles, you and your drivers will need to pay various taxes.
- Vehicle Excise Duty (VED), also known as ‘road tax’ or ‘vehicle tax’
- Excise Fuel Duty
- Benefit-In-Kind Income tax
- A Congestion Charge in certain ‘Low Emission Zones’ (LEZs)
However, you can minimise your tax bill by choosing more fuel-efficient vehicles.
For example, the taxation system for both VED and company car tax is now based on a vehicle’s emissions. The ‘cleaner’ your vehicle, the less you will pay. The rate of VED payable is calculated on a sliding scale, with the most polluting petrol and diesel vehicles – those emitting over 255 grams of CO2 per kilometre (g/km) – paying over £400 per year. Conversely, those emitting up to 100g/km are zero-rated and those emitting between 101-120g/km pay just £35 for 12 months. There are big savings to be made.
Vehicles running on alternative fuels also qualify for a lower rate of VED. You can find information on VED rates on the Directgov website.
The Car Fuel Data service from the Vehicle Certification Agency (VCA) also provides details of a vehicle’s VED band together with its fuel consumption and CO2 emissions figures.
As you will know from recent events, Excise Fuel Duty is charged on road fuels and oils, and will be payable every time you buy fuel. The rate payable will depend on the type of fuel you use. Alternative fuels are charged less fuel duty than petrol and diesel.
Depending on which alternative fuel you choose, you could pay almost half the amount you would be paying for petrol or diesel. Read the current fuel duty rates on the HM Revenue & Customs (HMRC) website.
Tax relief on the purchase of new vehicles is now based on CO2 emissions. Companies that opt to buy environmentally-friendly cars can benefit from favourable capital allowances. For example, electric cars and those with very low emissions of less than 110g/km can qualify for 100 per cent capital allowances. Find out about tax relief on cars at businesslink.gov.uk ‘capital allowances on cars’
Company Car Tax Arrangements
If your employees use company cars they will have to pay tax on their use as a benefit-in-kind. This tax is also now based on the CO2 emissions of the vehicle. The lower the emissions, the lower the personal tax paid by the driver. Find out about calculating the benefit-in-kind tax payments for company car drivers on the HMRC website.
Diesel Company Car Tax Supplement
The 3% diesel tax supplement on benefit-in-kind tax for company cars and fuel was disproportionate. It was introduced over 10 years ago to penalise the use of Euro 3 diesel cars because they were much more polluting than their petrol-powered equivalents. Euro 5 standards has brought diesel cars much closer in line with petrol cars in terms of pollutants emitted.
In the 2012 March budget, the Chancellor announced the removal of the 3% diesel surcharge from April 2016. It was later confirmed by the Treasury that this will apply to all registered diesel vehicles and not just those registered after April 2016. This is good news for company car drivers and means diesel cars will become even more popular in company car fleets.
Congestion charges and tolls are payable for driving on certain roads. If you drive on these roads you will have to pay these additional charges unless your vehicle qualifies for an exemption. In addition to the congestion charging zone, if you operate certain vehicles within London, you may have to pay a daily charge to drive within the LEZ unless your vehicles meet emissions standards. See our guide on how to use vehicles in the London Low Emissions Zone (LEZ).