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Business Motoring greener now? By Rebecca Benneyworth
Rebecca Benneyworth considers future strategy for drivers based on the recent budget changes.There were a number of changes announced in the Budget affecting business motoring for both company employees and the self employed. The general thrust of these, and changes announced earlier but taking effect now is to use the tax system to further reduce carbon emissions from car travel. So has the best strategy for motorists needing to drive for business altered as a result of these changes, and what does the future hold?
Benefits in kind
The best news for some motorists is the significant reduction in benefit in kind charges for those driving the greenest cars. Those driving cars emitting no more than 120g/km of CO2 see their benefit in kind reduce from 15% to 10%, while those vehicles propelled by diesel will trigger a benefit of 13% of list price, rather than 18%. The range of petrol cars meeting the limit is small, but there is a fairly wide range of diesel cars available to the canny driver, so those with company cars do now have the opportunity to limit their tax bill by driving very low emission cars. Naturally, the benefit will also be very low for private fuel, with a benefit in kind of £1,690 on petrol models, giving a tax charge of £676 for a higher rate taxpayer, or £388 for a basic rate payer. At over £1 per litre, this would buy the higher rate taxpayer around 650 litres of fuel, or 140 gallons of unleaded fuel. The smallest of these cars will return around 60mpg on a combined cycle, which would allow 8,400 miles of private motoring, or 4,200 for the basic rate taxpayer. So for those willing to use cars such as the Toyota Aygo, Peugeot 107 and Citroen C1 (essentially the same vehicle) for business journeys, the return of the company car may be in sight. These cars are extremely cheap to run, and will benefit from a reduction in road fund licence next year when the structure of vehicle excise duty changes.
All other drivers see their tax bills rise this year, as a result of the changes to the car scale table announced in 2006. The lowest figure on the table reduces by 5g/km so that drivers of cars emitting over 139g/km will pay tax on an additional 1% of list price this year apart from those driving the highest emission vehicles, who will continue to pay at 35% of list price. Thus, the increase in tax this year for other drivers is between 0% and 6.7%. They will also pay more for the benefit in kind on fuel, as the basic element of benefit has increased for the first time in four years from £14,400 to £16,900.
Obviously, the above changes will also affect employers, as these changes will increase (or reduce) the Class 1A NIC paid next July.
Employee use of private cars for business journeys
Those employees who gave up their company car some time ago, to replace it with a privately owned car are not affected by tax changes this year. The amount on which they can claim tax relief, or which they can receive tax free for business miles remains 40p for the first 10,000 miles, and 25p thereafter. Small cars can be run adequately for this amount, even when depreciation is taken into account, but larger cars, perhaps more suited to longer journeys, will cost significantly more than this to run. It was expected that these rates would change this year, as part of HMRCs review of ECOS (Employee Car Ownership Schemes), but there are no changes at present. Of course all drivers will be affected by the changes in vehicle excise duty which take effect next year, with drivers of very low emissions vehicles paying less road fund licence next year, and those driving the highest emissions vehicles paying considerably more.
Capital allowances
The only change implemented immediately is to reduce the emissions for the greenest cars in relation to capital allowances. The previous 100% allowance given for the purchase of new registered low emission cars emitting no more than 120g/km has been replaced by an allowance at the same rate on new cars emitting no more than 110g/km. If the list of less than 120g cars is fairly short, the list of those emitting no more than 110g is even shorter! It does include the Toyota Prius and Honda Civic hybrid, plus the three small cars mentioned above, emitting 109g/km each. Beyond that, it is the Mini diesel which pretty much completes the list in both the Cooper and Clubman versions. Once again, cars costing more than £12,000 will be added to the main pool after receiving the first year allowance, thus ensuring that no balancing charge is crystallised when the car is sold provided the pool can stand the deduction of sale proceeds. No doubt the short list of contenders will increase significantly over the life of this allowance (until April 2013).
The self employed
Those working for themselves, and partners in firms have the easiest situation of all. For those businesses turning over no more than the VAT threshold currently £67,000 they have a choice of either claiming tax relief on their business motoring costs as a percentage of their total motoring costs, or of charging the Authorised Mileage Allowance Payment rates of 40p and 25p against the business. If the taxpayer wants to change his basis of claim, he must wait until he changes the car to change methods. If full motoring costs are to be apportioned, then the taxpayer will also claim a proportion of capital allowances including the 100% rate on very low emission cars. However, for the self employed taxpayer (including partners) there is a sting in the tail of the allowance. When the car is sold, it will attract a balancing charge, as with even a small adjustment for private use, the car will be set in a single asset pool, and thus crystallise a balancing charge on disposal.
The future
The plans to revamp capital allowances on expensive cars which have been under discussion for some time have now borne fruit. Budget 2008 saw the announcement of a new capital allowance regime for all cars. From April 2009, new cars emitting no more than 110g/km will continue to attract 100% first year allowances. Cars emitting up to 160g/km, including second hand low emission cars will be included in the main pool irrespective of cost. They will therefore attract 20% writing down allowance on a reducing balance basis. Cars emitting more than 160g/km will be added to the special rate pool and will thus attract 10% per annum WDA. In both cases, however, the significant loss of balancing allowances on the most expensive (and probably high emissions) cars will be a serious issue. Under the current system the allowances on expensive cars are weighted to the end of the cars life, but over that life the full cost of the car is allowed for tax. In future, companies will be carrying significant values in their pools, long after the cars have been sold.
Once again, the self employed and partners are winners, as a private use adjustment will trigger the car into a single asset pool, on which the balancing allowance will be available at the end of the life of the car (when it is sold). Perversely, these motorists will see a significant acceleration in allowances when the car has cost in excess of £30,000, with 10% of written down value allowed each year, and the balance of the cost in the year of sale.
One final point to note is that it is not clear how the transition from the current system will work in 2009. It is expected that the new pooling arrangements will apply only to cars purchased from the date the new rules commence, but no clear statement either way has been publicly made. Finance Bill 2008 does not include the relevant legislation, so we shall have to await further announcements before we know what is the best policy to accelerate the purchase of new cars before the rule change, or, for the self employed, to delay.
AccountingWEB.co.uk 9-Apr-2008
Categories: Tax Features, Tax - Rebecca Bennyworth
Times read: 5004
Andrew, the proposal is to remove the restriction for all cars with emissions up to 160g/km. For cars over that emission threshold, the proposal is to have a fixed % disallowance - this would be 15% from 2009.
www.worsleytaxationservices.com
Other than recently in the motoring press, I have not yet seen any comment made about changes to the legislation governing the tax allowable proportion of an "expensive" leased car. Currently such a car has to have a value greater than or equal to £12,000 at which point only a fraction of the leasing payment is recoverable.
Can anyone advise me of the effect of the 2008 (or even the forecast 2009) budget on this calculation. The article in the motoring journal suggested 15% of "relevant" payments would be disallowable.
A bit more reliable than Whatcar should be the dvla site - http://www.vcacarfueldata.org.uk/search/vedSearchResults.asp
Although at first sight it confirms the vehicles mentioned by Rebecca but omits the VW Polo Bluemotion which is confirmed by the site when you search by make and model as having an emission of 99 g/km without aircon but 104 with it.
It should be borne in mind that there are lots of different versions of any given model - and that is why this site appears to omit the polo as it gives the figure instead for a model without the Bluemotion technology. The problem for the moment is that the Finance Bill is not yet law so government sites are concentrating at present on the divide above and below 120 g/km, when the bill becomes law we may see a separation of the band up to 110 and then 120. It is not very joined up government to drop the limit to 110 and leave the BIK limit at 120, but they are trying to save money - there were far too many cars qualifying at 120 g/km - eg an Audi A3 1.9Tdi. Note wih Rebecca's example of the Minis it is only the cars with manual transmission that fall under 110, with automatic transmission the CO2 figures are over 130 g/km!
At the end of the day it is vital to find out what infomation with be shown on the VED form because that is the only figure that matters in law.
Pradip, I rely on ploughing through the back pages of What Car magazine (that well known technical journal) hgihlighting cars with the right emissions quoted. This is of course not a 100% source, but is a useful indicator of likely models.
At present I reckon they are :
Citroen C1, Peugeot 107, Toyota Aygo - all petrol around £7,000
Toyota Prius and Honda Civic Hybrid (quite a lot more expensive)
Mini Cooper diesel and Mini Clubman diesel (ditto)
VW Polo Blue Motion (forgotten the exact model but I think 1.4d)
This doesn't include things like the GWhizz, which I suspect What car doesn't reckon is a car(!)
Hope this is complete - I'm camped at Glasgow airport waiting for a very delayed plane without my trusty What car, so this is from memory.
Where can one obtain the list of cars that qualify for the 100 % Capital Allowances with effect from 06 April 2008.
I'm unsure of the basis of the report that Mark refers to regarding production of electricity.
Obviously electric cars still rely on energy being produced somewhere, and in most cases this is not pollution free as it will still be derived from fossil fuels (although it is of course possible that it is produced from wind or other 'free' energy sources). It is therefore certainly important that we consider the big picture.
However, a power station and its associated distribution network must, by definition, be more efficient than producing your own energy from your own personal power station that you drag around with you (as is the case with conventional cars) - if it wasn't then we would all have our own domestic power stations rather than buying electricity in.
And of course we are now heading towards a second wonderfully clean and risk free nuclear age, where power stations produce no CO2 and with no downsides (if you believe everything you read!).
Another advantage of fossil fuel energy production being centralised at a power station is that the direct emissions are not pumped straight into someone else's face/air intake!
From a tax point of view, I guess that the justification for electric cars being treated as having the lowest level of CO2 emissions is that if the electricity has been derived from fossil fuels then there is a separate emissions scheme that seeks to tax/incentivise the energy producers, so tax has effectively already been paid on this aspect higher up the chain.
If a car qualifying for 100% allowance is bought on 31/03/2009 (last day of accounts year for a sole trader) is delivered to business address and then the sole trader undertakes 5 miles business use goes back to business address and leaves it overnight then there is no private use at the time the claim is made. In subsequent years private use is incurred but has no affect on capital allowances.
Is this correct as it seems too good to be true but appears on the face of it a perfectly feasible tax strategy !
Steve Jones
I learned yesterday that electric cars are not as green as is at first thought due to the carbon emissions of the power stations that create the electricity that drives the car. These are disproportionately high as compared with the emissions of petrol powered cars.
I also wonder whether it is too much to hope that the various different CO2 bands for cars could be rationalised across the tax system.
Mark Lee
Tax Advice Network
I wonder if the Authorised Mileage Allowance Payment rates will be adjusted as petrol costs rise further, or whether they will stick at their current levels as an incentive to be "green" ...
