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Commercial Angles' Newsletter - February 2002

Company car tax charges

Employees' tax codes for April 2002

The Inland Revenue has recently issued tax coding notices for the 2002/03 financial year. Unfortunately, for many employees with company vehicles the tax codes are incorrect and will result in under- or over-deduction of PAYE tax. The Inland Revenue is aware of the problem and has put the following notice on their web site.

Calculation of Company Car Benefits for 2002/03

From April there is a new system for calculating the value of the benefit of having a company car. The charge will be based on the car's carbon dioxide (CO2) emissions and the existing reductions for business mileage and older cars will no longer apply.
Because in most cases, we don't have all the information we need to calculate the value of the benefit using the new rules the amounts of car benefit in recently issued PAYE Coding Notices for 2002-2003 are based on estimates and probably need to be changed. Where the amount of benefit we have estimated is too low that could mean that company car drivers will underpay tax through the year and will face an unexpected tax bill later on.
Where we have had to estimate the amount of car benefit, company car drivers should have received a leaflet with their Coding Notice explaining this and asking them to send us the information we need to ensure that they pay the right amount of tax through the year. In many cases this did not happen. We apologise for that. Another leaflet will be issued to those drivers at the end of February/ beginning of March telling them exactly what information we need from them and how they can give it to us. We would encourage everyone who receives one of those leaflets to contact us with the details we need to put in place the correct tax code before the beginning of the new tax year on 6 April. They will then pay the right amount of tax through the year on their company car benefit.
In other cases where the correct information has already been provided to us by employers the recently issued Coding Notices have not been calculated as they should have been because of a problem with the transfer of information between our computer systems. (Since 6 April 2001, employers have been required to provide us with CO2 emissions details where a car is changed or first made available after that date. In addition, some employers have provided us with information for cars made available before that date). Again, we apologise for this. Revised Coding Notices using the information already given to us will start going out to company car drivers within the next few weeks and everyone concerned should have received one by the end of March. This will ensure that these people too pay the right amount of tax through the year on their company car benefit.

Many drivers will ignore or not understand the leaflets sent with their new tax codes, so employers are advised to inform their drivers of the problem.

Income tax scale charges for private petrol use

The Inland Revenue has published a consultation document on its web site, concerning the future taxation on employees who receive free fuel for private motoring. The 2001/02 tax year is the fourth year in the five year programme of annual increases in the income tax fuel scale charge. The government wants the new system to be environmentally friendly whilst easy for employers to implement and for employees to understand. The consultation paper invites people to submit suggestions for how this tax should be continued from April 2003 onwards.

The paper points out that the government wishes to discourage the giving or receiving of free fuel for private use in a company car. It also explains the changes which have taken place recently in Vehicle Excise Duty (annual car tax) and the company car benefit charge. Both annual car tax and company car benefit charge for 2002/03 onwards will be linked to Carbon Dioxide emission levels. The consultation paper puts forward three possible options for restructuring the fuel scale charge:

Option 1: to link the free fuel benefit charge directly to the Carbon Dioxide emission levels. The fuel scale charge would be a multiplier of the emission level, with possibly a lower multiplier being used for less polluting vehicles.
Option 2: to link the free fuel scale charge directly to the percentage figure used to calculate the car benefit charge. The percentage figure depends on two factors:
- the carbon dioxide emission level, and
- supplements for diesel vehicles or discounts for alternative fuel.
Option 3: to link the free fuel benefit charge directly to the Vehicle Excise Duty payable. There would be four bands of carbon dioxide emissions: <150 g/Km; 151 - 165 g/Km; 166 - 185 g/Km and >185 g/Km. The amount of the free fuel charge would depend on the above bands as well as the type of fuel used, whether petrol, diesel or alternative fuels.

Comments on the proposals should be sent on or before 8 February 2002 to Julia.Vinall@ir.gsi.gov.uk.

Articles from previous newsletters