IMPROVING THE ENVIRONMENT: MAJOR CHANGES TO THE TAXATION OF COMPANY CARS

A major reform of the taxation of company cars to help protect the
environment was announced by the Chancellor today. The package of
reform, which takes effect from April 2002, will:

be introduced in a revenue neutral way,

      - remove any incentive to drive unnecessary extra business
        miles,
      - give company car drivers and their employers a tax
        incentive to choose more fuel efficient cars, and
      - encourage manufacturers to produce cars with lower
        carbon dioxide emissions.

The Chancellor's decision follows a review of how the company car tax
regime might be altered to send better environmental signals. From
April 2002, the existing income tax charge based on 35 per cent of
the car's price, subject to business mileage and age-related
discounts, is to be abolished. This will be replaced by a charge on a
percentage of the car's price graduated according to the level of the
car's carbon dioxide emissions.

The Inland Revenue will be undertaking further consultation on the
precise details of the linkage between carbon dioxide (and possibly
other) emissions and the tax charge, with a view to bringing forward
legislation in the 2000 Finance Bill.

To pave the way for this reform, the Chancellor has also announced
reductions in the existing business mileage, age related and second
car discounts to take effect from 6 April 1999. There will be no
increase in the full tax charge on a company car, which will remain
at 35 per cent.

There will also be increases in the fuel scale charges for company
cars, in line with the programme announced in last year's Budget.

DETAILS

A. The value of the benefit of a company car

1. The following details apply for 1999-2000, 2000-01 and 2001-02.
From 2002-03, the charge on the benefit of a company car will be
graduated according to carbon dioxide emissions, and none of the
discounts mentioned below will apply.

The full tax charge

2. The full tax charge on a company car remains at 35 per cent of the
price of the car. This charge will apply when a company car driver
drives less than 2,500 business miles in the car in the tax year.

Business Mileage discounts

3. Where a company car driver drives 2,500 to 17,999 business miles
in the car in the tax year, the tax charge will be 25 per cent of the
price of the car.

4. Where a company car driver drives 18,000 or more business miles in
the car in the tax year, the Chancellor proposes a tax charge on 15
per cent of the price of the car.

Older car discounts

5. The tax charge, after taking into account business miles, will be
further reduced by one quarter, rather than one third, if the car is
four or more years old at the end of the tax year.

Second car discounts

6. Generally, second cars will be taxed on 35 per cent of the price
of the car each year. If, exceptionally, the second car is also used
for at least 18,000 business miles a year, the charge will be reduced
to 25 per cent.

Yield

7. These increases in company car tax will yield #270 million in
1999-2000, #265 million in 2000-01 and #260 million in 2001-02.

B. Increased Fuel Scale Charges

8. The following table shows the increased fuel scale charges and the
additional weekly tax payable for 1999-2000 where free fuel is
provided for private motoring in company cars:

Engine Size	Scale charges for 1998-99	Scale charges for 1999-00	Increased weekly tax (basic rate taxpayer)
	#	#	#
PETROL
0-1,400	1,010	1,210	0.88
1,401-2,000	1,280	1,540	1.15
2,001 +	1,890	2,270	1.68
DIESEL
0-2,000	1,280	1,540	1.15
2,001	1,890	2,270	1.68
Cars without a cylinder capacity	1,890	2,270	1.68

NOTES FOR EDITORS

Company cars

1. Directors and employees earning at a rate of #8,500 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. Cars provided
exclusively for business use and which are not available for private
use are not taxed.

2. References to company cars in this press release include all cars
made available for private use to employees (and their families) by
reason of their employment.

3. For 1998-99, the full tax charge is on 35 per cent of the price of
the company car, with discounts of:

one third where the car is driven for 2,500 to 17,999 business
miles;

two thirds where the car is driven for 18,000 or more business
miles;

and

a further one third reduction for cars four or more years old
at the end of the tax year.

4. 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

- provided 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 or more

            - excluding, since 6 April 1998, the extra cost of
              enabling the car to run on road fuel gases - compressed
              natural gas (CNG) or liquid petroleum gas (LPG).

5. The price of a car is currently restricted to an upper limit of
#80,000 (including accessories) for the purposes of the tax charge so
that where the price of the car exceeds this figure, its price for
those purposes is taken as #80,000.

6. The reductions to the discounts which take effect from 6 April
1999 mean that 1.55 million company car drivers will pay more tax on
the benefit of their company cars.

7. The Inland Revenue will alter PAYE codes in May this year to
collect the additional tax payable. Company car drivers and their
employers need take no action themselves.

Free Fuel

8. The taxable value of petrol provided for private motoring is fixed
by reference to three bands of engine size - 1,400 cc or less, 1,401
to 2,000cc and over 2,000cc. Two bands are used for diesel - 0 to
2,000cc and over 2,000cc. A car without a cylinder capacity is
treated as if had over 2,000 cc capacity.

9. The new scale charges give the amounts on which employees provided
with free fuel will pay tax in 1999-2000. 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.

10. Of the 1.7 million directors and employees who have a company
car, under half (820,000) get free fuel for private motoring and so
will pay more tax on this benefit. Again, this will be collected by
adjustment to PAYE codes in May, so no action need be taken by those
affected, or their employers.

11. The car benefit charge and fuel scale charges are also used as
the basis for employers' Class 1A National Insurance Contributions
and the Inland Revenue will be issuing guidance to employers on the
new level of charges shortly.

12. There has been a change to the way that budget measures, where
the tax is collected through PAYE, are to be reported in the
Financial Statement and Budget Report (FSBR) this year. From 1999
onwards, entries will be shown on a 'cash withholding' basis, to
reflect when the income tax is actually deducted from employees' pay
packets. Previously in the 1998 FSBR, entries were reported on a
'receipts' basis which reflected when the PAYE would actually be paid
over to the Exchequer.

Reform of the structure of the tax charge on company cars

13. Comments on the proposal to abolish the discounts for business
miles, older cars and second cars altogether, and replace them with
adjustments to the percentage of the car's price charged based on the
car's rate of carbon dioxide emissions (in grams per kilometre) would
be welcome. Comments are particularly invited on whether this charge
should also take into account local pollutants (such as particulates
and nitrogen oxides) as well as carbon dioxide emissions.

14. Comments may be sent to:

Sara Woollard
Personal Tax Division
Room 87, New Wing
Somerset House
Strand
London, WC2R 1LB

by 31 May 1999.

INLAND REVENUE PRESS OFFICE
Media Enquiries to : 0171 438 6706/6692/7327
(Out of hours : 0860 359544)
Non media enquiries to 0171 438 6420/6425
(Office hours only)
Inland Revenue information is on the Internet:
www.inlandrevenue.gov.uk

# = pounds sterling

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