Company Cars and Tax

Company cars are one of the most popular employee benefits. Altogether, more than 1 million UK directors and employees drive company cars. Of these, half receive free fuel for private use.

Successive governments have increased taxation on cars and fuel. Both employers and employees now need to consider the tax implications of company cars before making decisions.

Since April 2002, the system has been reformed to encourage companies to run 'greener' cars. A car's CO2 emission levels now determine the tax paid for both new and existing vehicles, though older vehicles (registered before 1998) are still taxed on engine size.

This briefing covers:

• How employees and employers are currently taxed on company cars.
• Ways to reduce the tax paid.
• The difference between buying and leasing a car.