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Car benefit charges

The irony of car benefit charges is that although its purpose was to tax the benefit of private mileage use, the actual level of private mileage is not relevant.

As an employee (or director) who is allowed the private use of a company car you are liable to tax on the benefit of driving it. The amount on which you are taxed is referred to as the 'car benefit charge'.

Company car taxation from 6 April 2002 was linked to the car's carbon dioxide emissions (CO2). These rules were designed to be revenue neutral, but may eventually lose revenue for the Treasury as company car drivers select more environmentally friendly vehicles, or move into cash alternatives. The system has the following features:

* business mileage discounts were abolished, thereby removing the incentive to drive unnecessary business miles in order to achieve a reduced tax bill;

* the range of 15% to 35% of a car's list price was retained. The charge will start, for 2007/08, at 15% where a car emits 140 grams per kilometre of carbon dioxide rising in 1 per cent steps for every additional 5 grams per kilometre emitted, to a maximum of 35%;

* Diesel cars which meet Euro IV standards were allowable for a 3% discount in the diesel rates below, but the maximum charge will stay at 35%. However, for 2007/08, no waiver for Euro IV diesels registered on or after 1st January 2006;

* The exact carbon dioxide figure will be rounded down to the nearest 5 g/km for company car tax purposes.

* From 2008/09 there will be an additional appropriate percentage rate of 10% for company cars with CO2 emissions of 120 grams per kilometre or below. Emissions between 121 and 124 will not be rounded down to 120.

Without doing detailed calculations it is easy to see that there will be winners and losers under these rules. The drivers who are likely to be the biggest losers are those who drive 18,000 business miles or more in a year. Under the old rules they were paying a tax charge based on 15% of their car's list price, so they cannot be better off under this third year of the new regime and will have to drive one of the very cleanest cars just to stay neutral.

Budget 2007 announced that Company Car Tax rates and thresholds will be frozen for 2009-10.

Budget 2008 announced that Company Car Tax rates and thresholds will be increased on all but the cleanest cars emitting 130 grams per kilometre or less in 2010-11.
CO2 emissions in grams per kilometre Percentage of car's price taxed
2008/09 2009/10 2010/11 Petrol Diesel
120 120 120 10 13
125 125 125 15 18
130 130 130 15 18
135 135 130 15 18
140 140 135 16 19
145 145 140 17 20
150 150 145 18 21
155 155 150 19 22
160 160 155 20 23
165 165 160 21 24
170 170 165 22 25
175 175 170 23 26
180 180 175 24 27
185 185 180 25 28
190 190 185 26 29
195 195 190 27 30
200 200 195 28 31
205 205 200 29 32
210 210 205 30 33
215 215 210 31 34
220 220 215 32 35
225 225 220 33 35
230 230 225 34 35
235 235 230 35 35
Source: HM Revenue & Customs
Cars powered by alternative fuels tend to be more expensive than their conventionally propelled counterparts. Because they can deliver significant environmental benefits the government does seek to mitigate this extra cost by offering specific discounts to the tax charge.

Alternative fuel – bi-fuel vehicles

The tax charge is calculated using the list price and the car benefit percentage that applies to the gas CO2 figure. That percentage may then be adjusted to take account of a discount.

Whether a discount applies depends on the type of bi-fuel car. A 2% reduction will apply to the percentage of the list price that is taxed for bi-fuel cars with CO2 emissions figures for gas (known for tax purposes as type B cars) provided that the car was approved as a bi-fuel car and was first registered on or after 1 January 2000.

From 2008/09, a 2% reduction will apply to the percentage of the list price that is taxed for cars manufactured to be capable of running on E85 fuel (known as a Type G car for tax purposes).

None of these adjustments for bi-fuel cars apply to qualifying low emissions cars i.e. those attracting a benefit charge of 10% from 2008/09.

The web site does not include the reductions available for electric only, hybrid electric and gas only cars. These cars are still relatively uncommon please note the following:

  • A reduction of 3% will apply to the percentage of the list price that is taxed in respect of hybrid electric cars first registered on or after 1 January 1998;
  • A reduction of 2% will apply to the percentage of the list price that is taxed in respect of gas only cars based on the CO2 emissions figure when the car runs on LPG and provided the car was first registered on or after 1 January 1998;
  • Electric only cars benefit from a reduction of 6% of the percentage of the list price that is taxed provided the car was first registered on or after 1 January 1998.

Again, please note that none of these adjustments apply to qualifying low emissions cars i.e. those attracting a benefit charge of 10% from 2008/09.

Click here to view Future Car benefit charges
Click here to view Past Car benefit charges
Income tax rates • Car benefit charge • Fuel benefit charge • National insurance contributions (NICs)
Approved Mileage Allowance Payments (AMAP) • Graduated Vehicle Excise Duty (GVED) • Fuel costs