In the current economic environment, the focus of most employers is increasingly on costs and their desire to provide maximum value to their employees for minimum spend. As a consequence, Green Cars and the associated tax breaks remain firmly on the reward agenda and companies are reconsidering the way that they make purchasing/leasing decisions, how they provide cars and what categories of worker will have the opportunity to have a company car.
Since the company car tax rules were changed in April 2009, the tax relief available to businesses has been based on CO2 emissions. This means that cars with emissions that do not exceed 110g/km or are electric can currently qualify for a 100% first-year allowance and those with less than 160g/km emissions attract a 20% capital allowance rate.
Happily, the car manufacturers have risen to the challenge of meeting the increased demand for Green Cars and now there is are a variety of ‘executive’ and even ‘prestige’ cars which have emissions under 110g/km.
In addition to these savings, there is a growing trend towards the introduction of salary sacrifice for company cars, with many businesses not restricting take-up to the traditional ‘perk’ or ‘essential user’ categories. Instead, there is a move towards offering cars to the wider workforce with the following advantages:
Employees: make tax savings by sacrificing salary taxed at 32% (tax and NIC for a basic rate payer) in return for a car with emissions below 110g/km and pay tax on only 10% of the list price. This makes driving a new car affordable for all staff who are able to sacrifice salary and the option is there for employees to take a 2nd or even a 3rd car for their spouse or university aged and over children, where the Employer’s scheme permits. In addition, cars with lower CO2 emissions generally use less fuel which means less fuel cost, thus generating further savings.
Employers: benefit from volume discounts, can recover some VAT and save on NIC costs. There is also the corporate responsibility benefit of knowing that your employees are driving roadworthy vehicles and that your own Green Agenda is being met.
As with all salary sacrifice arrangements, care should be taken around their implementation and specialist tax advice sought in every case. If you would like to know more about the tax breaks available for low emission vehicles, please contact your usual RSM Tenon contact.