The popularity of company cars as a benefit in kind remains largely undiminished, according to newly-published data from HM Revenue and Customs.

Car benefit (48%) and car fuel benefit (11%) together represent almost 60% of the total taxable value of all benefits in kind (2011/12: £7.35 billion), considerably more than the proportion of employees in receipt of the benefits due to average tax liability being higher than for other benefits.

The figures reveal that 950,000 employees in 2011/12 paid company car benefit-in-kind (BIK) tax, a figure unchanged from 2010/11 and revised upwards by 10,000 following last year’s provisional estimate.

Although HMRC has calculated a provisional figure for 2012/13 of 940,000 people paying company car BIK tax, the data is further clear evidence that the brake has been applied to the decline in the number of company cars on Britain’s roads.

In 1999/2000, 1.61 million people paid BIK tax on their vehicles, according to HMRC. However, that figure declined over the next decade as tax liability increased.

Despite the reduction in the number of employees driving company cars, the amount of tax collected as a result of the benefit totalled £1.2bn in 2011/12 – beating liability for 2009/10 (£1.15bn) and 2010/11 (£1.17bn) when 970,000 and 950,000 employees respectively paid tax on the benefit.

Tax take estimated to rise despite

A further rise to £1.25bn is estimated for 2012/13 as a consequence of annual rises in BIK tax emission thresholds despite the forecasted reduction in vehicle provision (see table below).

Alastair Kendrick, tax director at chartered accountants MacIntyre Hudson, said: “It is clear from the data that the downward trend in company car provision has bottomed out, perhaps helped by interest in car salary sacrifice schemes.

“The figures also highlight the number of employees for whom a company car is essential and not simply a perk.”

Commenting on HM Treasury’s rising tax take from company car provision, Kendrick said: “The figures demonstrate that despite the best endeavours of motor manufacturers to produce low CO2-emitting cars and employers to introduce them to their fleets, the Chancellor always has the upper hand in terms of how much tax employees will pay.”

The data reveals that the number of people paying BIK tax on fuel used privately has also declined.

The Government has increased year-on-year the fuel scale charge on which tax is paid and that has driven the reduction, although 240,000 people in 2011/12 continued to be in receipt of the ‘perk’ (2010/11: 250,000), with a further reduction to 220,000 in 2012/13 estimated.

HMRC also pointed to rising fuel prices over the period, causing employers and employees to look more carefully at whether the fuel benefit formula resulted in a tax charge commensurate with the true value of the benefit as a potential cause for the reduction.

However, despite that reduction it remains surprising that around a quarter of company car drivers remain in receipt of so-called ‘free fuel’.

Kendrick said that the vast majority of employees would be financially better off paying for fuel used privately out of their own pocket.

He said: “It is difficult to get employers and employees to understand that almost without exception both parties would be financially better off if the so-called benefit was withdrawn. It is an expensive ‘perk’, but there is a hardcore that is resistant to change.”

Sharp decline in fleets paying above AMAP rates

There continues to be a sharp decline in the number of employees paying tax on mileage allowances paid in excess of the tax-free Approved Mileage Allowance Payment (AMAP) rate.

HMRC data shows that after many years of the figure being around the 550,000 mark it fell to 510,000 in 2010/11 and 380,000 in 2011/12, with a further fall to 320,000 estimated in 2012/13.

The tax authority said the reduction in recipients was due to the 2011/12 increase in AMAP rates from 40p to 45p for the first 10,000 business miles with a further cut forecast as a result of some employers, in particularly local authorities, reducing mileage payments.

Meanwhile, the number of employees paying benefit-in-kind tax on vans and company fuel used privately in vans is unchanged.

Private use of company vans remains static

HMRC said that since 2008/9 the number of people using a company van privately and thus paying tax has been static at 60,000, with 40,000 people paying tax on fuel used privately, a figure unchanged since 2007/8.

The tax liability data also reveals that, in 2012/13, the Government expects to collect:

£260m in car fuel benefit tax – a figure unchanged since 2009/10, which shows the impact of the annual scale charge increase despite fewer recipients of the ‘perk’

£30m in tax on mileage allowances – down from £50 million for seven successive years to 2010/11

£40m in van BIK tax – unchanged in recent years

£5m in tax on van fuel used privately – also unchanged in recent years.

Additionally, the data reveals that the Government saw revenue from National Insurance Contributions (NICs) from businesses paid on the company car benefit reduce to £460m in 2011/12 (2010/11: £470m). However, that decade-long trend is forecasted to have ended in 2012/13 with £480m collected.

The Treasury’s NIC take from car fuel benefit was £100m in 2011/12 and is estimated to be unchanged in 2012/13.

NIC receipts are estimated to fall to £30m from £40m on mileage allowances paid above the AMAP rate, with a cut to £20m estimated for 2012/13. NIC liability on vans was unchanged at £20m.

Although the statistics reveal that company cars have the highest taxable value, in terms of number of recipients, private medical and dental insurance is the most popular taxable benefit with 2.26m people in receipt in 2011/12 (62% of all benefit recipients), followed by company cars (26%) and excess mileage allowances (10%).

Meanwhile, HMRC’s latest BIK statistics book reveals that in 2011/12 87% of company car drivers were at the wheel of vehicles emitting less than 165g/km (2010/11: 81%) of CO2.

About 78% of company cars were diesel with the remainder being petrol and alternatively-fuelled cars.
In 2011/12, most company cars (170,000 or 18%) were in the 135-144g/km category followed by 160,000 (17%) in the 115-124g/km segment.

HMRC says that average emissions of company cars reduced between 2010/11 and 2011/12, with the number of recipients with cars emitting under 145g/km increasing by 30% and the number with cars above that figure decreasing by 26%.

HMRC said: “The emission-dependent scale of appropriate percentages for company cars is one of the many factors incentivising the manufacture and purchase of low emission vehicles."