Mixed Budget outlook for company car schemes

Many company car and car allowance schemes will benefit from a raft of changes announced in the Budget this week, including changes to the company car tax rate, approved mileage allowance payments (AMAP) and fuel duty rates.

However, many schemes will also see a rise in costs from changes to the benefit-in-kind tax rate, national insurance and the fuel benefit charge.

AMAP rates, which are the levels at which employees who use their own cars for business mileage can claim tax-free reimbursement from their employers, will rise on 6 April 2011 from 40p per mile for the first 10,000 miles to 45p per mile. Thereafter, the rate will remain at 25p per mile.

This is the first rise in AMAP rates since 2002. According to fleet management service provider Toomey Opticar, this will save businesses that run employee car ownership (ECO) schemes £336 per year for 20% taxpayers who drive at least 10,000 business miles per year, £481 for 40% taxpayers and £685 for 50% taxpayers.

Toomey Opticar’s chairman Jim Salkeld commented: “The Budget was not expected to produce much in the way of relief for motorists other than perhaps a pause in fuel duties, yet there were a couple of hidden gems that will help considerably.

“The increase in AMAP rates for the first 10,000 business miles by 5p to 45p will make a huge difference to our clients and others who use elements of ECO provision in mixed-fleet strategies.”

Both fleet managers and workers taking advantage of company car schemes will welcome the news that the main fuel duty rate has been reduced by one pence per litre and the planned increase on 1 April has been deferred until January 2012, a move that has been welcomed by motoring organisation the AA.

The Government has also introduced a fair fuel stabiliser, which will draw taxes from the oil companies to ensure that when oil prices are high, fuel prices will only increase according to inflation.

Ian Hughes, commercial director at fleet management service Zenith Provecta, comments: “The Budget includes several measures which will help to support companies in their management of fleet- and vehicle-based employee benefits.

“The fair fuel stabiliser will help to reduce the fluctuations in fuel prices. This in turn assists businesses in planning ahead with more certainty and reinforces the benefit of utilising a whole life cost approach to projecting fleet spend.”

Additionally, schemes using low-emission cars will benefit from a reduction in company car tax. From April 2013, vehicles with carbon emissions of between 95g and 220g will see a reduction of 1% in company car tax, while those with emissions up to 75g will remain at 5%.

However, employers could have to make up the difference by paying more elsewhere. Organisations providing company car schemes may see a rise in the cost of doing so when the national insurance rates rise by 1% in April and the fuel benefit multiplier, used to calculate the cash equivalent of the taxable benefit, increases from £18,000 to £18,800 on the same date.

The benefit-in-kind tax rate for company cars is also set to rise for many vehicles, although low-emission cars will not see a change in the near future. Register for our company car Buyers’ guide for free and view a full guide to the changes to this charge over the next three years.

Tell XpertHR about your company car scheme and receive a complimentary copy of this year’s report once the analysis is complete. You will also gain instant access to last year’s benefits and allowances travel and subsistence report as soon as you complete the survey.

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