One of the major factors in the emission of Green House Gases is the global use of diesel and petrol across society, particularly when it comes to business. Martin Gurney, Tax Partner, Haines Watts Swindon, weighs up the benefits of investing in green motoring for your company.
In most cases, the cost-benefit position when considering having a company car is:
If you own a limited company, the company and personal tax costs outweigh the benefit of you having a company car.
If you are an employee or self-employed, the benefit of having a company car is typically greater than the cost of running your own car privately.
However then ‘green’ cars came along – i.e. cars with very low or no CO2 emissions – and this has changed the dynamic.
Your personal tax
If you have a company car, there are two possible tax charges: one for having a company car and another tax charge for private fuel, if the employer also provides fuel for private use.
Both charges are based upon the CO2 emission level of the car – the greater the emissions, the greater the tax charge [with diesel engine cars suffering a surcharge compared to petrol engines], the benefit in kind is a fixed percentage ranging from 0% to 37%.
Where a business operates a company car, it may claim a tax deduction against the cost of owning and operating the vehicle.
It can claim a tax deduction of 18% per annum against the cost of the vehicle, however that is reduced to 6% for higher emission cars.
The rules operate in a way that means that, typically, the business will take a long time to fully recover the cost of the vehicle against its tax.
The business also pays National Insurance on the value of any car and fuel benefits provided to employees.
Although there is no difference in treatment between standard cars and ‘green’ cars, it is worth noting that, in general, a business cannot claim back VAT on the purchase of a car but can claim back part of the VAT on a vehicle rental and can claim VAT back on running costs and fuel.
Where do ‘green’ cars fit?
The personal tax charge for a zero emission car is currently zero. In addition, there is no ‘fuel’ benefit in kind if the vehicle is charged using business electricity. This is a huge personal tax saving compared to a standard vehicle.
For other green cars (cars with some electric motor capacity) the benefit in kind is based on the range of the electric element with the benefit in kind ranging from 0% – 12%.
Again there is no benefit in kind for charging the vehicle, however the fuel benefit in kind will apply if private petrol or diesel is paid for by the business.
In addition, if a car has an engine emission of up to 50g CO2/km, the business can claim an immediate tax deduction of 100% of the purchase price.
Electric and hybrid vehicles are still expensive compared to standard petrol/diesel engines.
For me personally there are two fundamental questions:
Is there a strong business case for investing in a low emission vehicle?
Is there evidence to suggest the overall carbon footprint of the vehicle (from construction, to operation and end of life) is actually lower than a standard vehicle?