Employee cars and fuel

Employees usually depend on their employers to come up with a tax-efficient pay package. But there are some points which employees should watch out for, in case the employer hasn't noticed.

The benefit of having the employer provide free fuel for private motoring in a company car is now heavily taxed, with promises of more increases above the rate of inflation. On the other hand, the price of the fuel itself has been so high over the last year that the tax charge may still represent good value. If the figures suggest that the benefit should be replaced by something else (for example, a compensatory pay increase), then it is important to change the package before 6 April - if the benefit is available for even part of the fiscal year, it is taxed for the whole of it.

Company cars themselves are taxed on 35% of their original list price, reduced to 25% or 15% if there is substantial business mileage. The system is due to change on 6 April 2002 to one based on "emissions" rather than business mileage - if you currently enjoy the significant discount for driving 18,000 business miles a year, you are likely to see a substantial increase in the tax charge in the year 2002/03. On the other hand, if the car is more of a "perk" than a "tool of the trade", you are likely to see a decrease in the tax charge.

This is intended to be a "green measure", removing the reward for high mileage, although it is not clear how it will really encourage people to travel less by car. Whatever the reasons, it will be important to consider in advance what the effect on the tax charge will be in 2002/03.

There is also a traditional surge in business mileage in March by people trying to make the thresholds of 2,500 or 18,000 business miles by 5 April - perhaps this is one piece of environmental damage that the changes really could prevent!

Actionpoint:

ARE YOU PAYING MORE TAX THAN YOUR BENEFITS ARE WORTH?

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