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New analysis: Playing the numbers game with tax on company cars

A REPORT from HM Revenue & Customs (HMRC), released last week, looks into the impact of the company car tax reforms introduced in April 2002.

By implementing the changes to the company car tax regime, the Government had hoped to further its environmental strategy. It believed that by encouraging company car drivers to choose more environmentally friendly cars, the resulting reduction in carbon emissions would help to prevent the planet boiling in its own juices within a few short decades.

Last Wednesday, the day of the Budget, a report was published that examines the effect of the reform four years on.

Unsurprisingly, the statistics concentrated on the reductions in pollution that are believed to be a result of the reforms, and the cost to the Exchequer. Taken in isolation, the numbers portray the Government as a planet-friendly legislator prepared to sacrifice revenue to reduce greenhouse gasses and preserve dwindling resources.

Much has changed since 2002. The risks associated with pushing business drivers away from company cars have caused a bit of a rethink, and the number of company cars on the road, whether it’s the current claim of 1.2 million or the 2001 figure of 1.6 million has always been contentious.

The report looks at awareness and understanding of the reforms too and claims 90% of employers and company car drivers know about the reform. Less impressive, perhaps, is the claim that only half of them know why the reforms were introduced.

We will return to many aspects of the report over future weeks but for now, here are this week’s big draw numbers.


WITH fewer company car drivers and those who are still choosing cars opting for lower-tax vehicles, HMRC estimates that the Treasury has lost £440 million in revenue since the introduction of CO2-based company car tax.


JUST under 50% of company car drivers and their employers knew that the tax reform was introduced with the intention of reducing levels of harmful emissions from cars.


THE report suggests that average CO2 emissions for company cars in 2004 were 15g/km lower than they would have been if the new system had not been introduced.

HMRC says this estimate refers to the impact of the company car tax reform over and above the general reduction in CO2 emissions from cars over recent years.

It said: ‘The significant shift from petrol to diesel company cars in recent years is likely to have helped to reduce the total level of CO2 emissions from cars, as diesel models tend to produce lower levels of CO2 per kilometre than similar petrol models.

‘However, the shift to diesel means that there has been an associated adverse impact on local air quality as diesel cars, compared to petrol cars, generally produce higher levels of some pollutants such as nitrous oxides and particulates that harm local air quality.’


THE proportion of company cars that are likely to be powered by diesel ‘over the next few years’.


THE report’s evaluation work also suggests that if drivers no longer have company cars, on average they will choose private cars with CO2 emissions figures that are around 5g/km higher as a result.


THE number of company car drivers in 2001, according to HMRC.


THE number of company car drivers in 2005. The reports says: ‘The number of company cars has reduced to around 1.2 million in 2005 compared with around 1.6 million in 2001. The company car tax reform is a major reason for this.

‘The extent to which numbers will change in future will depend on various factors, including the levels of CO2 thresholds in company car tax and tax exemptions for business journeys undertaken in private cars.

‘The survey results show that the perceived and real impacts of the 2002 company car tax reform is the biggest single reason cited by employers and employees for opting out of company cars.

‘The results suggest that the reform was a reason for no longer providing company cars for approximately 70% of employers who opted out and for about 60% of employees who chose to give up a company car.

‘The introduction of the reformed Approved Mileage Allowance Payments (AMAPs) exemption is also cited as a factor.

‘It influenced around 17% of decisions by employers to no longer offer company cars and around 25% of decisions by employees to choose to give up their company cars. About 25% of employers who no longer offer company cars also wanted to reduce associated administrative costs.’


THE number of employees provided with structured employee car ownership schemes. Most have switched from company cars with reduction of tax and NIC liabilities claimed to be the key reasons.


THE vast majority (65%) of opt-out employees are given cash, with £3,000 the average remuneration.


THERE has been a reduction of around 600,000 company car drivers receiving free fuel for private use since 1997, with the number thought to now stand at 400,000.

This is due to a combination of the drop in the number of company car drivers and increasing fuel scale charges.


WITH most company car drivers no longer receiving free fuel for private mileage, drivers have claimed they drove 100,000,000 fewer private miles in 2005 than in 1997.

Revenue & Customs view on BIK tax changes

THE effects of the company car tax reform will be felt for a number of years ahead, and will need to be closely monitored.

‘This information will be used to continue to inform the maintenance and further development of company car tax and other related aspects of the tax system.

‘The reform of company car tax in 2002 was, and continues to be, an important strand of the Government’s policy commitment to reduce greenhouse gases.

‘This further work will help the Government to assess the extent to which the company car tax reform is helping the UK to meet its commitment under the Kyoto protocol to reduce greenhouse gas emissions to 12.5% below 1990 levels between 2008 and 2012.Company cars are also very important to businesses in the UK and to the economy as a whole.

‘HMRC will continue to monitor and maintain the company car tax regime to ensure it achieves the goal of reducing levels of harmful emissions and pollutants, while taking into account relevant economic and social factors.

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