In 2002 the government introduced the CO2 emissions based taxation of company cars as it began to proactively use taxation as a means of encouraging company car drivers to choose environmentally friendly. As a result the average CO2 emissions of new cars in the UK has dramatically fallen and so, buoyed by this clear validation of its policy, the government extended the scope of emissions based taxation with the introduction, last year, of legislation governing the corporation tax relief available on company cars.
Meanwhile, given the impact of the recession the government has been forced to increase taxation. With effect from April 2010 the highest rate of income tax rose to 50% and in April 2011 the rate of National Insurance Contributions (“NIC”) will rise by 1%. However, as the benefit-in-kind on a petrol/diesel company car with emissions of less than 120g/km is only 10% of its list price there is a significant difference between the taxation of cash compared to the taxation of company cars.
When taken together with the corporate discounts enjoyed by fleet operators the company car represents a tremendously valuable benefit. Employers can significantly enhance the value of their employee reward package, by offering staff a range or environmentally friendly company cars, without increasing payroll costs. Many employers are therefore considering the inclusion of company cars within their existing flexible benefits schemes, with the cost of the car being met via salary sacrifice.
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