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Company cars
The tax rules for company cars should...receive early attention in order to remove the present distortions (6.8).
We support the proposal in a recent report that, to encourage purchase of cars with lower fuel consumption, the fuel consumption of the relevant model should be the future basis for taxing the benefit provided by a company car, either as a factor applied to the list price (the current basis for taxation) or instead of the list price (2.58).
- The existing system for taxing company cars has been criticised as providing a perverse incentive to drive further in order to reach the business mileage thresholds which attract significant reductions in the tax liability. In the March 1998 Budget the Chancellor announced that he would be considering the case for replacing the existing business mileage discounts with discounts for driving fewer private miles in company cars, and invited people to send comments to the Inland Revenue; the Government is considering the wide range of responses received so far. It also sees an important role for major company car fleet purchasers to select more fuel-efficient vehicles; this issue is now being addressed by the Cleaner Vehicles Task Force.
- The tax system for employees who receive free fuel from their employers for private use (about half of all company car drivers) has given them little incentive to reduce their private mileage, as the employee pays the same amount of tax whatever the amount of private mileage driven. The Government considers it is important to send consistent signals about the need to reduce unnecessary journeys and improve fuel efficiency. It therefore announced in the March 1998 Budget that the scale of charges for employees provided with free fuel for private use will be increased by 20% each year over and above normal increases up to 2002/3 to discourage employers from providing free fuel. Coupled with the proposal to reduce VED by £50 for the smallest and least polluting cars, this will help to ensure that company car drivers face the same incentives for fuel efficiency as other drivers.
Published 23 December 1998
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