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Company cars

Updated Budget 2006

Budget 2006 introduced a refinement to the tax regime covering company cars, which came into effect on 6 April 2002. Your company car is assessed solely on its CO2 emissions and the benefit assessed at between 10%-35% of the as new list price.

Discounts are available for bi-fuel and hybrid electric cars.

From 6 April 2006, the lowest level emissions of up to 120 gram/km qualify for the lowest assessment level. Each 1% rise in assessment level above that equates to a 5 gram/km rise in CO2 emissions up to 265 gram/km. Diesel-fuelled cars that fail to meet a Euro emissions standard face a 3% surcharge up to the maximum 35% assesment level.

If you do drive a company car, this should be accounted for in your new PAYE tax coding. Working out what your company car could cost you is a straightforward calculation, setting the percentage tax figure against the list price of the vehicle to work out the liability. A basic rate taxpayer will pay 22% of that figure while a higher rate taxpayer will pay 40%.

For example, a basic rate taxpayer driving a Ford Focus Studio would have a tax liability of £1,686.75 (15% of the £11,245 list price) and a tax bill of £371.09. A higher rate taxpayer driving a Porsche Boxster would have a tax liability of £11,312 (35% of the £32,320 list price) and a tax bill of £4,524.80.

An additional taxable benefit arises if you receive free fuel from your company for private use. The fule benefit charge is calculated by applying the appropriate car tax percentage to a set figure - the multiplier. The multiplier figure for 2006-07 is frozen at £14,400.

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Want to work out whether you're better off with the company car, or better off with the cash? Then visit Cash or Car.