Car Tax - Benefits of an Economical Car

Company Car Tax

So, you go to work. You work hard. You get a promotion.  you get a company car for your private use. Unfortunately, this also means that the government will require you to pay tax . Up until 2002, company car tax was calculated on business mileage, but now the key to calculating how much you pay is the effect that your car has on the environment.

Calculating Business Car Tax

Employees are liable to pay tax on any company car that is also available for private use, and if you are earning more than £8,500 per annum you will almost certainly be affected. If your employer pays for the fuel you use on business trips, you will also pay additional tax. To calculate the tax on the car you’re driving, there are a few steps to follow.

Work out the Value of Your Car

Work out the value of your car – Value in this instance is calculated by looking at the list price of the car, then taking into account any additions you have made to the vehicle that would increase its value. It’s also worth taking into account any lump payments you have made towards the purchase of the car, as this would reduce it’s value and therefore reduce the amount of tax you pay.

Calculate the Co2 Emissions

Find out the CO2 emissions of your car – Any car registered after 1st March 2001 will state the CO2 emissions on the vehicle registration certificate. Otherwise, check out http://www.vcacarfueldata.org.uk/.

Examples of Savings

This is where it gets interesting. The more economical your car is, the lower the amount of tax you will pay. As the environment has become a more pressing political issue, the advantages of having an eco-vehicle have increased dramatically. For example, in 2008, if you bought a petrol-run Ford Mondeo estate, which belts out 170g/km in CO2, you would have paid a slightly painful 22% in tax benefit. However, by 2011, new government plans will mean that you will pay a massive 27% in tax on your vehicle. That’s a 5% increase in 4 years. Ouch.

Chose an Eco Car to Save Money

On the other hand, if you choose vehicles that are economical and environmentally friendly, you will save yourself a bundle, and the incentives to do so are only increasing. In 2008, a new lower 10% rate was introduced for cars with carbon emissions of 120g/km or less, so if you had bought a Peugeot 107 with 109g/km instead of the Mondeo, you would have saved yourself 12%. Nice.

Employers NI Contributions

Now, new changes to car tax are only making it more tempting for employees (and employers who pay Class 1A National Insurance Contributions (NIC), as they will pay more if employees drive vehicles with high CO2 emissions) to choose an eco-car.

Zero emission Cars pay no Tax for 5 Years

From this year, cars with zero emissions cars will have 0% tax for five years. Owners of cars that do not exceed 75g/km will pay just 5% for five years. That’s a whole lot of cash you could be keeping in the bank.

For a more detailed list of Green and Eco cars click here.