Contractors' Questions: How does the 2010 Budget treat company cars?

Contractor's Question: Was there anything in the Budget regarding company cars, and fuel allowances, for limited company owners?

Expert's Answer: In the continuing efforts of the government to use the tax system to incentivise the use of 'green' technologies, new company car rates are being introduced.

Where cars produce CO2 emissions of less than 75g per kilometre, the proportion of the list price that will be treated as a benefit in kind is reduced to 5%. For cars that produce no CO2 emissions at all, the threshold will be reduced to 0%, so they will effectively be a tax free benefit.

In practice though, very few cars qualify for these reduced rates. However it will certainly make those that do more attractive – especially when considered in addition to other benefits such as congestion charge exemption, free parking and accelerated corporation tax relief for the cost of these cars.

The expert was Andrew Shaw, tax partner at Kingston Smith.

Expert's Answer: Changes to the rules for company cars, vans and fuel were also announced in Budget 2009. One change is the removal of the current £80,000 cap, so those with cars costing more than this will have a taxable benefit based on the actual price of the car and not simply the £80,000. Further details from HMRC are available in PDF format.

Also note that electric cars can be provided to directors and employees without any benefit in kind tax or NICs charge, for 5 years from 6 April 2010, as HMRC says.

In addition, car and van fuel benefit increases will affect those who have 'free fuel' provided by their limited company. The figure used as the basis for calculating the benefit of private fuel received for a company car which is chargeable to tax and Class 1A NICs will be increased from £16,900 to £18,000 from 6 April 2010. The figure used as the basis for calculating the benefit of private fuel received for a company van which is chargeable to tax and Class 1A NICs increases from £500 to £550, according to the details.

The expert was Anne Redston, visiting tax professor at King's College London, and author of the PCG's 2010 Budget analysis.

Expert's Answer: It was announced that from 6 April 2012 the 'car benefit scale' will continue to reduce with cars with a CO2 emission up to 99gm/km now at the rate of 10%. All other vehicles will move down by a further 5gm/km, adding a 1% addition onto the car benefit.

Meanwhile, the 3p increase per litre on fuel will now be "staggered" with a 1p increase from April 1st, 1p from October 1st and the balance on January 1st, 2011.

The expert was Ray McMahon, tax advisor at Consultant365.