The Cost of Company Cars is on the Rise

HMRC has published tables showing the percentages that will be applied in the calculation of company car benefit charges for the next few years. It is immediately evident from the tables that, for the majority of the CO2 emission bands, the percentage applied to the list price of the car will be jumping up by 2% year on year. This will have the effect of making the car benefit charge for the same car considerably higher each year despite the car being older and presumably less desirable to drive around in. As an illustration of this, a car with a list price of £20,000 and CO2 emissions of 118g/km would generate a benefit in kind value of £3,200 in 2014/15 (based on an appropriate percentage of 16%) and a benefit in kind value of £4,800 in 2018/19 (based on an appropriate percentage of 24%). The benefit value would therefore be 50% higher on the same car despite it being 4 years older. This in turn would result in an increased tax charge from £640 to £960 over the 4 years for a basic rate tax payer or from £1,280 to £1,920 for a higher rate tax payer. The percentage hike is even more significant in respect of very low CO2 emission cars (<50g/km) which, after a similar 2% increase each year for the next 3 years, will experience a 4% hike from the 2017/18 tax year to 2018/19.

In light of this, clients with older company cars may wish to consider switching to a newer vehicle with a simlar list price but lower CO2 emissions to prevent the car benefit charge from escalating.