If you are an employer providing cars to your employees or you have a company car, then you could easily reduce your tax bill by GOING GREEN!

What is the advantage for the employer? 

Low emission cars (emissions of 110g/km or less) attract 100% first year capital allowances and this will continue to apply when the new capital allowances regime commences in April 2009. So effectively, you get tax relief for the full gross cost of the car in the year of acquisition. 

What is the advantage for the employee? 

The system of calculating the Benefit in Kind (BIK) for company cars by reference to a % of the list price dependent on the level of emissions is now well established. The percentage levels at the the upper and lower end of the table, with corresponding adjustments running throughout, to maintain the pressure to choose lower emission cars.  

From April 2008, new tax breaks are available to employees who have company cars with CO2 emissions of 120 g/km or less. The BIK chargeable on these cars is reduced to 10% of the list price for petrol cars and 13% for diesel cars. For example, a diesel car costing £10,000 generates a car scale benefit of £1,300. For a 20% basic rate taxpayer, this equates to a tax cost of £21.66 per month, £260 in a full tax year. The corresponding Class 1A National Insurance employer's cost in a full year is £166.40 

Aren't all the low emission vehicles poor and unreliable? 

No! The technological advances over recent years mean that it is no longer just vehicles of the much-maligned Prius ilk which fall into this category. The range of low emission cars that meet the 120g/km or less requirement now includes prestige manufacturers such as Audi and BMW as well as a range of estates, hatchbacks and saloons from the likes of Ford, Renault, VW and so on. The list of cars with emissions of 110g/km or less, which qualify for 100% first year capital allowance is not so long. However, the choice is increasing year on year and this trend should continue in line with the clear tax advantages available to employers and employees. Details of vehicles with 120g/km or less can be found at www.vcacarfueldata.org.uk

Can salary sacrifice be used to reduce the cost? 

You can offer low emission cars to employees in return for salary sacrifice. For example, if it costs an employee £200 per month to maintain and insure a car, excluding fuel, this cost is funded from net salary. If this is funded from gross salary via salary sacrifice, the net cost to the employee after tax (20%) and national insurance (11%) is £138 plus the car scale charge based on a £10,000 list price of £21.66, giving a total cost of £159.66. The employee saving is just over £40 per month. There is no cost to the employer as the full cost is being met by the employee via salary sacrifice. Other employer savings might be available including national insurance and VAT on the cost of the car.