Abacus Online March 2002 COMPANY CARS - Your Opportunity To Save £'000's ? The Current Rules The tax charge for an employee provided with a company car is currently based on a percentage of the list price of the car. The percentage is dependent upon the level of business mileage and the age of the car. The lowest percentage charge arises for someone doing high business mileage in an older car. The highest percentage charge applies to someone driving very few business miles in a newer car, the so-called 'perk' car. The complete list of charges for the current tax year (2001/02) is set out in the client fact sheet section of this web site. The New Regime - 6th April 2002 et seq The Government originally announced their intention to reform the taxation of company cars in 1999. The reforms are designed to help protect the environment by tackling global warming and improving local air quality. The new regime will continue to tax company cars by reference to the list price of the car, but graduated according to the level of its carbon dioxide (CO2) emissions. The new regime is intended: to encourage manufacturers to produce cars which are more environmentally friendly; and to give company car drivers and their employers a tax incentive to choose more fuel-efficient vehicles. The existing business mileage and age related discounts will be abolished. This is at least in part because the Government believes that up to 300 million business miles may be driven unnecessarily each year in order to reach the mileage discount thresholds. Quite where the belief stems from, no one seems too sure! As under the current regime, the percentage charge for the majority of cars will be between 15% and 35%. The new emissions table is set out in the client fact sheet section of this web site. Obtaining Emission Data The Vehicle Registration Agency produces a free guide to the fuel consumption and emissions figures of all new cars. It is available on the internet at www.vcacarfueldata.org.uk for all cars first registered from 1 March 2001 onwards, the definitive (CO2) emissions figure is recorded on the Vehicle Registration Document (V5). Under an agreement with the Inland Revenue, the Society of Motor Manufacturers and Traders (SMMT) is providing, for a limited period, a (CO2) emissions enquiry service at www.smmt.co.uk/co2/co2.asp for cars first registered between 1 January 1998 and 28 February 2001. The Winners and Losers - death of a salesman and rebirth of the perk car? The winners under the new regime will be those with relatively modest cars doing few business miles - i.e. the 'perk' car drivers. The losers will be those driving at least 18,000 business miles a year in high specification models - often sales people. For example a company car user driving a £20,000 car for 22,000 business and 10,000 private miles can expect an increased tax bill of £880 for 2002/03 compared to the previous year. Further examples of the effect of the new regime can be found at the client fact sheet section of this web site. As a general word of warning remember to be specific in any discussions. For example, if a new VW Passat is planned as a company car, the emissions, depending on the precise model can vary from 154 to 262 and therefore the tax change could be as low as 18% or as high as 34%. The Way Forward - what are the alternatives? It may pay to consider alternatives to the company car, particularly where the increase in taxable benefit will be substantial next April. The examples on this web site show the level of saving that could be made if the car was to be owned privately by the employee with the employer paying a mileage allowance equal to the statutory rate. Conclusions As our example demonstrates, there may be significant savings to be made by abandoning the company car in favour of private ownership under the new regime. However, the employee savings are modest compared with the savings available to the company. Other issues therefore need to be considered. The employee might expect some salary compensation or an interest free loan as recompense, at least in part, for the fact that the employee now has to bear the unpredictable running costs of the car. These considerations have not been factored into the calculations in our example. Furthermore, don't underestimate the 'comfort factor' of the company car. The employee knows that whatever happens the employer will take care of it. Factors That Won't Change the list price of a car will still be the price when it was first registered including delivery, VAT and any accessories provided with the car or subsequently made available (unless they have a list price of less than £100); the list price will continue to be restricted to an upper limit of £80,000; employee capital contributions up to £5,000 reduce the list price; and the benefit will continue to be proportionately reduced if the car is unavailable for part of the year. Action to be Taken Reviewing the options available and deciding on which is the best option for you can be a daunting task. We at Nunn Hayward appreciate that this complex issue needs a practical and understandable method to assess the impact and take positive action. We have therefore developed a specialist package to enable comparisons to be made between cars and whether they are better as company or private cars. If you wish us to produce a report based on your circumstances, then please contact Mrs Diane Kendall 01753 889669. The charge for the report will be £85 plus VAT for each vehicle considered. If you need to discuss anything further, or would like any clarification or help in deciding, Please contact Steve Cook, Partner at steve@nunn-hayward.com. Gerrards Cross Fun Run - 19th May 2002 Nunn Hayward are pleased to announce that once again we are main sponsors for this event with all funds raised being donated to the Teenage Cancer Trust. We have our team of runners who are already in training. We will also be manning the tombola/raffle marquee on the day. There are some fantastic prizes up for grabs. If you would like to purchase raffle tickets or require entry forms for the fun run contactkathy@nunnhayward.com E-Commerce Seminar We have received a very positive response to the e-commerce seminar which is being held on Tuesday 30th April 2002 at The Bull Hotel starting at 5.45 pm. So if you have not already reserved a seat please contact kathy@nunn-hayward.com. Please contact us to discuss the above further Tel: 01753 888211 Fax: 01753 889669 Email: abacus@nunn-hayward.com Nunn Hayward, Sterling House, 20 Station Road, Gerrards Cross, Bucks SL9 8EL. Registered Auditors, Licensed Insolvency Practitioners and authorised to carry on investment business by the Institute of Chartered Accountants in England and Wales. This publication has been prepared as a guide only to topics of current financial and business interest. No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by us. All rights reserved. If you would like to subscribe to future editions of the Abacus Newsletter then please e-mail your name and address and we will add you to our mailing list.