Company Car Tax Rates

Who is likely to be affected?

Businesses and employers that provide company cars and employees provided with company cars that are made available for private use.

General description of the measure

For 2014-15, the measure increases the appropriate percentage of the list price subject to tax by one percentage point for cars emitting more than 75g of carbon dioxide per kilometre, to a maximum of 35 per cent.

Policy objective
The measure ensures that company car tax continues to reflect changes in fuel efficiency and supports the sustainability of the public finances. In addition, new European standards which come into force in September 2015 will require diesel cars to have the same air quality emissions as petrol cars. The diesel supplement will therefore be removed in April 2016.

Background to the measure

Company Car Tax rates have traditionally been announced around two years in advance, to give certainty to industry. Finance Bill 2012 will legislate 2014-15 company car tax rates.

Detailed proposal
Operative date
This measure will take effect from 6 April 2014.

Current law
Sections 121 to 148 of the Income Tax (Earnings & Pensions) Act 2003 (ITEPA) provide for calculating the cash equivalent of the benefit of a company car which is made available for private use. In broad terms, this depends on the list price of the car multiplied by the level of carbon dioxide emissions the car produces, which is expressed as the appropriate percentage.

Proposed revisions
Legislation will be introduced in Finance Bill 2012 to increase by one percentage point, the level of the appropriate percentage for company cars, to a maximum of 35 percent. This excludes zero emission vehicles and vehicles emitting 75 grams or less carbon dioxide per kilometre, which are subject to special rates in 2014-15. Legislation will be introduced in a later Finance Bill to make the following changes: In both 2015-16 and 2016-17, the appropriate percentages of the list price subject to tax will increase by two percentage points, to a maximum of 37 per cent. From April 2016, the Government will remove the 3 percentage point diesel supplement so that diesel cars will be subject to the same level of tax as petrol cars.

From April 2015, the five year exemption for zero carbon and the lower rate for ultra low carbon emission cars will come to an end as legislated in Finance Bill 2010. The appropriate percentage for zero emission and all low carbon cars emitting less than 95g of carbon dioxide per kilometre will be 13 per cent in 2015-16, and will increase by two percentage points in 2016-17. A full table of rates can be found in the 'Overview of Tax Legislation and Rates' document that is published alongside the Budget.

Summary of impacts
Exchequer impact (m) 2012-13 2013-14 2014-15 2015-16 2016-17 +120 +375 +350 These figures are set out in Table 2.1 of Budget 2012 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2012. Increasing Company Car Tax will increase average income tax rates for those who receive this benefit-in-kind. Since those affected are predominantly higher income households the impact on consumption and labour supply is expected to be relatively small. On average this measure will give year on year increases in the tax paid by an employee driving a petrol company car of 70 in 2014-15, 165 in 2015-16 and 165 in 2016-17. An employee driving a diesel company car will see average increases of 85 in 2014-15 and 190 in 2015-16, followed by a reduction of 85 in 2016-17. A basic rate taxpayer driving a typical diesel fuelled car, such as a Ford Focus, with a list price of 18,000 and CO2 emissions of 146g/km will pay around 35 more in 2014-15, 70 more in 2015-16 and 35 less in 2016-17. A higher rate tax payer driving the same company car will pay 70 more in 2014-15, 145 more in 2015-16 and 70 less in 2016-17. A basic rate taxpayer driving a typical petrol fuelled Ford Focus with a list price of 16,300 and CO2 emissions of 159g/km will pay around 30 more in 2014-15, 65 more in 2015-16 and 65 more in 2016-17. A higher rate tax payer driving the same company car will pay 65 more in 2014-15, 130 more in 2015-16 and 165 more in 2016-17. Equalities impacts The changes apply equally to all company car drivers. There are no particular impacts on people with protected characteristics. Over 90 per cent of individuals receiving company cars have incomes above the UK median income for taxpayers, and around 60 per cent are higher or additional rate taxpayers. Impact on business including civil society organisations Operational impact (m) (HMRC) The measure is expected to have no impact on businesses (of all sizes including small firms) or civil society organisations as employer reporting and administration requirements will not change.

Economic impact

Impact on individuals and households

Routine IT and guidance changes required for HM Revenue & Customs.

Other impacts

No other impacts have been identified.

Monitoring and evaluation

The measure will be kept under review through regular communication with affected taxpayer groups.

Further advice
If you have any questions about this change, please contact Su McLean-Tooke on 020 7147 2665 (email: susan.mclean-tooke@hmrc.gsi.gov.uk).