More Than Just Emissions

MARK MORTON BA, ATII summarises some of the lesser-known issues relating to the new company car régime.

I have recently ordered a new company car and my wife and I found this to be a stressful experience. I had to explain to her the various factors to consider, such as CO2 emissions, the diesel supplement, possible discounting for super clean cars and, of course, colour.

My wife was only interested in one of these. However, the other factors may well have a substantial effect on my tax bill. Consequently, the following article will attempt to explain some of the less well-known issues which should be considered when purchasing a new car which will be held at 6 April 2002, the start date for the new company car régime.

Diesel

Diesel cars emit less carbon dioxide than petrol cars and, under the new system, would be taxed on a lower percentage of the list price than in an equivalent petrol car. However, diesel cars emit greater quantities of air pollutants than petrol cars and therefore a supplement of three per cent of the list price will be added to the relevant percentage. The maximum charge for diesel cars will be capped at 35 per cent.

The three per cent supplement will be waived if the car achieves the clean level of Euro IV standard emissions. The writer spent some time investigating the United Kingdom car market to see if such a car was available. Although several salesmen promised that they were, the July 2001 booklet from the VCA covering new car fuel consumption and emission figures makes it clear that, as yet, there appears to be no such car on sale within the United Kingdom.

However, diesel cars will, even taking into account the three per cent supplement, often give a better deal than a petrol equivalent and it appears that many drivers are now switching to diesel company cars. Interestingly, in the House of Commons, in a recent response to a written question, Paul Boateng said that the Revenue expected 200,000 more company cars in the long term under the new régime, as many would be paying less tax under the new system.

Bi-fuel cars

There appears to be an increasing number of bi-fuel cars on the road, many of which are older vehicles converted to run on liquid petroleum gas and petrol. For such cars registered on or after 1 January 2000, there are two carbon dioxide emissions figures, one for each fuel. The lower figure (invariably the liquid petroleum gas figure) will be used to calculate the percentage of the full list price. Having established the appropriate percentage, it is then reduced by applying a formula 'A+B', which equates to one per cent plus a further one per cent for each 20 grams per kilometre by which the carbon dioxide emissions figure is less than the lower threshold for that particular year.

However, for cars registered between 1 January 1998 and 31 December 1999, the appropriate percentage is reduced by only a flat one per cent. Bearing in mind that conversion costs are typically between £1,000 and £1,500, a one per cent reduction in the list price is unlikely to cover this cost. However, the bonus is that liquid petroleum gas is far cheaper per gallon than petrol.

Any equipment added to a pre 2000 vehicle to enable it to run on road fuel gas is not treated as an accessory for the purposes of arriving at the list price. In addition, where the car is manufactured in such a way as to be capable of running on road fuel gas, the price of the car is reduced by an amount that is reasonable to attribute to the cars being manufactured in that way. This should lead to some interesting negotiations with the Revenue.

Electric cars

There are similar provisions for cars that run solely on electricity, and partly on electricity and partly petrol, although the rules are subtly different from bi-fuel cars. There is a similar formula A+B but in this situation A equates to two per cent.

For cars solely propelled by electricity, the discount is six per cent, which will lead to a benefit of only nine per cent of the list price. However, whether this compensates for driving around at the speed of a milk float is a moot point!

Disabled drivers

There are special rules for disabled drivers. If the employee holds a disabled person's badge and is obliged to drive a car with automatic transmission because of his disability, the carbon dioxide emissions figure of the closest equivalent make and model of car with a manual transmission will be used, if it is lower. This ensures that disabled drivers do not face an unexpected penalty because of automatic transmission.

However, this also illustrates the point that automatic transmission in itself will lead to a greater benefit-in-kind than a manual transmission.

Pre-1 January 1998 registration

There is no reliable source of carbon dioxide emissions data for cars registered before 1 January 1998. Such cars will be taxed from 6 April 2002 according to their engine size as follows.

Imported cars

Some cars registered after 1 January 1998 may have no approved carbon dioxide emissions figure, perhaps if they were imported from outside the European Community. They too will be taxed according to engine size as follows.

The exact list price for an imported car is also a regular issue. Increasingly, where there is no United Kingdom equivalent, the Revenue will accept the price paid as the 'list' price.

Much to consider

As can be seen, complexities regarding the new company car régime abound. It is to be hoped that this article has drawn readers' attention to a few of the lesser-known points. Happy motoring!

Mark Morton provides lecturing and consultancy work for Mercia Group Ltd, the largest independent provider of training to the accountancy profession in the United Kingdom. He can be contacted on 0116 2581200; e-mail: mark.morton@mercia-group.co.uk.

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