The Road Ahead

Are the days of the company car numbered? Back when Norman Lamont was Chancellor (remember him?), we were told in his budget speech that he wanted to create “a level playing field” for company cars. What he was referring to was that at the time a company car was not just a perk, it was also a useful tax-planning tool, a nice tax efficient way to pay staff. His idea was that there should be no difference tax-wise between having a company car or having extra salary in order to pay for your own car.

As a result, he significantly increased the amount that company car drivers were taxed on with the aim that there would be no significant tax advantage in having a company car. Subsequent Chancellors have followed this lead and in April 2002 we saw the biggest change yet with the abolition of tax discounts for high mileage cars and the introduction of a tax calculation that includes a consideration of the carbon dioxide (CO2) emissions.

The CO2 change is actually one of the more clever pieces of tax legislation. Up until then we had a tax scheme that encouraged us to do more miles. This scheme encourages us to drive cars that produce less pollution. Nevertheless, whilst the tax on some company cars went down, the tax on most company cars went up.

Are we any nearer to this level playing field? The answer is no. We have a situation now where some people are better to have a company car and others are better to own the car privately and claim mileage rates. Under the new rules, someone driving their own vehicle for business can claim up to 40p a mile for the first 10,000 miles per year and 25p a mile thereafter.

So how do we know what we should do? The answer involves a very complicated calculation. Generally speaking, someone who does high business mileage and low personal mileage will be better off if they own their car personally but this might not be the case if the car they drive has low CO2 emissions. VAT issues and the fact that the owner of the business can take extra dividends rather than salary to fund the cost of running a car also complicate the question.

In the future perhaps our tax system will be more straightforward but for now the road ahead is littered with tax potholes.