We often get asked whether it’s tax efficient for to run zero emissions cars through the practice.
Currently, 100% capital allowances are available on the excluded VAT cost of the car, e.g. cost of car excluding VAT = £20,000, giving rise to a £20,000 reduction in taxable profits whatever the financial structure, i.e. company, partnership, LLP or sole trader. The government have indicated that this is presently due to last until April 2018.
There are also currently no taxable benefits in kind on individuals who run a zero or very low emission company cars, where CO2 emissions are less than 50 g/km, although this is changing.
A summary is set out in the table below for cars within this CO2 bracket and those cars relatively low emissions:
Emissions of CO2 | Multiple Applied to List Price |
| 2014 | 2015 - 2016 | 2016 - 2017 |
| 0 g/km | 0% | 5% | 7% |
| 1 - 50 g/km | 5% | 5% | 7% |
| 51 - 75 g/km | 5% | 9% | 11% |
| 76 - 94 g/km | 11% | 13% | 15% |
| 95+ g/km | 12% + 1% for every extra 5 g/km (max 35%) | 14% + 1% for every extra 5 g/km (max 37%) | 16% + 1% for every extra 5 g/km (max 37%) |
Taking an example therefore of a car with a list price (which could be different to the actual price if new and almost certainly if second hand) of £20,000 with CO2 emissions of 90g/km, then for 2015/16, the benefit in kind would be £20,000 x 13% = £2,600. It is this figure that is subject to the individual’s marginal rate of tax, being for example 40% if a higher rate tax payer or 20% if a basic rate tax payer.
Until April 2016, an additional 3% needs to be added to the above percentages for diesel cars (subject to the maximum figures detailed).
A separate fuel benefit in kind applies where practices provide fuel for private use. For 2014/15 this is calculated as the relevant percentage from the above table multiplied by £21,700. The £21,700 is expected to be inflated for future years, although these levels have not yet been set.
Please note that:
- where cars are used by the owners in partnerships, LLPs or sole trades, the company car/fuel benefit in kind rules do not apply
- different rules apply to van and commercial vehicles