Inland Revenue 6
17 March 1998
INCOME TAX: TAXATION OF COMPANY CARS AND CAR FUEL
FROM 6 APRIL 1998
To reduce the impact on the environment of emissions from
company cars, the Chancellor proposes in his Budget:
- to increase the scale charges for petrol provided for private
motoring in company cars by 20 per cent over and above the
usual increases in line with pump prices including fuel duty
in 1998-99 and in each of the following four years 1999-2000
to 2002-03;
- to increase further in 1998-99 the scale charges for diesel
provided for private motoring in company cars to align them
with those for petrol cars of the same engine capacity;
- to disregard the extra cost of enabling company cars to run on
cleaner and greener road fuel gases when calculating the
income tax charge on company cars from 6 April 1999; and
- to consider alongside the proposals in the forthcoming
Integrated Transport White Paper the case for replacing the
existing business mileage discounts with discounts for
driving fewer private miles in company cars.
The Chancellor's intention is to discourage employers from
providing and employees from accepting free fuel so that more
company car drivers face the full cost of the fuel they use
for private motoring. This should result in fewer private
miles being driven and lower carbon dioxide emissions. The
higher increase for diesel charges should help reduce urban
pollution in the form of particulates and nitrogen oxides.
The existing business mileage discounts are criticised as
providing a perverse incentive to drive extra business miles.
Replacing these with an incentive to drive fewer private miles
in company cars could help reduce urban congestion and carbon
dioxide emissions.
DETAILS
Increased Fuel Scale Charges
1. The following table shows the increased fuel scale
charges and the additional weekly tax payable for 1998-99:
Engine Size Scale Charges Scale Charges Increased weekly tax
For 1997-98 for 1998-99 (basic-rate taxpayer)
cc pounds pounds pounds
I. PETROL
0-1,400 800 1,010 0.93
1,401-2,000 1,010 1,280 1.19
2,001 + 1,490 1,890 1.77
II. DIESEL
0-2,000 740 1,280 2.39
2,001 + 940 1,890 4.21
III. Cars 1,490 1,890 1.77
without a
cylinder
capacity
2. The proposal is that the 1998-99 scale charges will be
further increased by 20 per cent over and above the usual
increases in pump prices including fuel duty in each of
1999-2000, 2000-01, 2001-02 and 2002-03.
3. The changes to the car fuel scales will yield 70 million
pounds in 1998- 99, 160 million pounds in 1999-2000 and 275
million pounds in 2000-01 rising further in 2001-02 and
2002-03.
Gas-powered cars
4. Where a company car is converted to run on road fuel
gases - compressed natural gas (CNG) or liquid petroleum gas
(LPG) - the cost of conversion will be ignored in calculating
the taxable benefit for 1999-2000 and subsequent years of
assessment: in other words, the conversion cost will not be
treated as an accessory in determining the price of the
company car for tax purposes.
5. Similarly, where a company car is designed to run on road
fuel gases from new, so much of its price as is solely
attributable to equipment necessary to allow the car to run
on CNG or LPG will be ignored for tax purposes for 1999-2000
and subsequent years of assessment: in effect the tax charge
will be based on the price of the equivalent petrol or diesel
model.
NOTES FOR EDITORS
1. Directors and employees earning at a rate of 8,500 pounds
a year or more (including the value of expenses payments and
benefits in kind) are taxable on benefits in kind. Income
tax is charged on the benefit of a company car and separately
on the benefit of free fuel where this is provided for private
motoring in a company car. References to company cars in this
press release extend to all cars made available for private
use to employees (and their families) by reason of their
employment. The basic charge is on 35 per cent of the price,
with discounts of:
- one third where the car is driven for 2,500 to 17,999
business miles; and
- two thirds where the car is driven for 18,000 or more
business miles.
2. For income tax purposes the price of the car will usually
be:
the list price of the car (including delivery and VAT) at
the time it was first registered, plus
- the price of any accessories:
- with the car when it was first made available to the
employee
- added after the car was first made available to the
employee, and fitted after 31 July 1993, with a price of
100 pounds or more.
3. The taxable value of petrol provided for private motoring
is fixed by reference to three bands of engine size - 1,400cc
or less, 1,401cc to 2,000cc and over 2,000cc. At present
there are lower scale charges for diesel cars on the basis of
two engine size bands - 2,000cc or less and over 2,000cc - but
from 1998-99 the diesel scale charges are to be aligned with
those for petrol cars of the same engine capacity.
4. The new scale charges give the amounts on which employees
provided with free fuel will pay tax in 1998-99. The charge
is apportioned if a company car is available for only part of
a year. The charge is reduced to nil if the employee makes
good the cost of all the fuel used for private journeys
including miles driven in commuting from home to work.
5. Of the 1.65 million directors and employees who have a
company car, around half - some 810,000 people - get free
fuel for private motoring and will therefore be affected by
the increased scale charges. The Inland Revenue will alter
PAYE codes in May this year to collect the additional tax
payable, without company car drivers or their employers
having to take any action.
6. The car benefit charge and fuel scale charges are also
used as the basis for employers' Class 1A National Insurance
Contributions and the Contributions Agency will be issuing
guidance to employers on the new level of charges shortly.
7. The car fuel scales have also been used in recent years
to assess VAT due on fuel provided out of business resources
for private motoring by registered traders and their
employees. However, the UK's derogation from the Sixth
Directive which permits VAT fuel scales, only allows the
scales to be increased in line with the average cost of fuel.
Accordingly separate scales increased in line with pump
prices including fuel duty increases are being set for VAT
purposes. (See press release issued by Customs and Excise.)
8. Comments on the case for replacing the existing discounts
for business miles with discounts for low private mileage
would be welcome. Comments may be sent to Guy Hooper,
Personal Tax Division, Room T16, West Wing, Somerset House,
Strand, London WC2R 1LB.
INLAND REVENUE PRESS OFFICE