Tax and Travel – Budget Report 16 March 2016

Tax and Travel

Car and fuel benefits

The taxable petrol and diesel car benefit is based on the car’s CO2 emissions. It is calculated using the car’s UK list price and applying the ‘appropriate percentage’, as shown in the table on the right. The car fuel benefit is calculated by applying the same percentages to the fuel benefit charge multiplier, which for 2016/17 is £22,200.

From April 2015, the five year exemption for zero carbon and the lower rate for ultra-low carbon emission cars came to an end. Two new bands were introduced for ultra-low emission vehicles (ULEVs). These were set at 0-50 g/km (5%) and 51-75 g/km (9%).

The appropriate percentages for the remaining bands were increased by 2% for cars emitting more than 75 g/km, to a new maximum of 37%.

From April 2016, all the appropriate percentages will be increased by 2%, up to the maximum of 37%. In addition, new European standards which came into force in September 2015 required diesel cars to have the same air quality emissions as petrol cars. The 3% diesel supplement was set to be removed in April 2016. However, it will now be retained until April 2021, when EU-wide testing procedures will ensure new diesel cars meet air quality standards even under strict real-world driving conditions.

The appropriate percentage will increase by 2% for cars emitting more than 75 g/km to a maximum of 37% in each of years 2017/18 and 2018/19.

CO2 emissions Appropriate
percentage
(g/km) Petrol
%
Diesel
%
0 – 50 7 10
51 – 75 11 14
76 – 94 15 18
95 – 99 16 19
100 – 104 17 20
105 – 109 18 21
110 – 114 19 22
115 – 119 20 23
120 – 124 21 24
125 – 129 22 25
130 – 134 23 26
135 – 139 24 27
140 – 144 25 28
145 – 149 26 29
150 – 154 27 30
155 – 159 28 31
160 – 164 29 32
165 – 169 30 33
170 – 174 31 34
175 – 179 32 35
180 – 184 33 36
185 – 189 34 37
190 – 194 35
195 – 199 36
200 and above 37

VAT on fuel for private use in cars

Where businesses wish to reclaim the input VAT on fuel which has some degree of private use, they must account for output VAT for which they may use the flat rate valuation charge.

Plug-in Grants

Motorists (private or business) purchasing new qualifying ultra-low emission cars can receive a grant of 35% towards the cost of the vehicle, up to a maximum of either £2,500 or £4,500 depending on the model. The scheme also covers new qualifying ultra-low emission vans, where the available grant will be 20% towards the cost of the vehicle, up to a maximum of £8,000. Vehicles with CO2 emissions of 75 g/km or less, including electric, plug-in hybrid and hydrogen-fuelled cars, are potentially eligible for the subsidy. There are strict criteria to be met before specific vehicles can be confirmed as eligible under the rules of the scheme.

Zero emission vans

As previously announced, the benefit for zero emission vans is to be increased on a tapered basis so that there will be a single van benefit charge applying to all vans by April 2020. For 2016/17 the charge will be 20% of the value of the standard van benefit charge (i.e. £634). There is no fuel benefit for such vans, as set out below.

Company vans

The taxable benefit for the unrestricted private use of vans is £3,170. There is a further £598 taxable benefit if the employer provides fuel for private travel.

Van and fuel charge Van Fuel Total
Tax (20% taxpayer) £634 £119.60 £753.60
Tax (40% taxpayer) £1,268 £239.20 £1,507.20
Tax (45% taxpayer) £1,426.50 £269.10 £1,695.60
Employer’s Class 1A NICs £437.46 £82.52 £519.98

Mileage rates

Changes to the HMRC business mileage rates are announced from time to time. The rates from 1 March 2016 are as follows:

Vehicle First 10,000 miles Thereafter
Car / Van 45p 25p
Motorcycle 24p 24p
Bicycle 20p 20p
Car – fuel only advisory rates
Engine Capacity Petrol Diesel LPG
1400cc or less 10p 8p 7p
1401cc to 1600cc 12p 8p 8p
1601cc to 2000cc 12p 10p 8p
Over 2000cc 19p 11p 13p

The fuel only advisory rates relate to company cars only. They can be applied as a tax-free maximum rate for employees claiming for petrol used on business journeys and for employees reimbursing their employers with the cost of petrol used for private journeys. HMRC will consider claims for a higher maximum rate, if it can be demonstrated that it is necessary for an employee to use a car with higher than average fuel costs.

Car costs – Vehicle Excise Duty (VED) rates

VED (‘Car Tax’) rates also reflect emissions. The following table shows the standard rates which apply from 1 April 2016 for cars registered on or after 1 March 2001:

VED Band CO2 emissions (g/km) Standard rate First Year Rate
A Up to 100 £0 £0
B 101 – 110 £20 £0
C 111 – 120 £30 £0
D 121 – 130 £110 £0
E 131 – 140 £130 £130
F 141 – 150 £145 £145
G 151 – 165 £185 £185
H 166 – 175 £210 £300
I 176 – 185 £230 £355
J 186 – 200 £270 £500
K* 201 – 225 £295 £650
L 226 – 255 £500 £885
M Over 255 £515 £1,120
* includes cars emitting over 225g/km registered before  23 March 2006