Section 23: Taxable Benefit of Cars: the Appropriate Percentage
Summary
1.Section 23 relates to taxable benefits on company cars. With effect from 6 April 2015, it modifies the appropriate percentage bands and carbon dioxide (CO) emissions thresholds by revising the appropriate percentage of the relevant threshold. It also introduces two new bandings in respect of low emission vehicles.
Details of the Section
2.Subsection (1) introduces changes to section 139 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) as amended by section 17 of the Finance Act 2012 with effect from 6 April 2014.
3.Subsections (2), (5) and (6) amend sections 139(2), 139(3) and 139(4)(a) respectively to remove otiose phrasing.
4.Subsection (3) provides for the two new rates of appropriate percentage for low emissions vehicles. Section 139(2)(a), which dealt with the special regime for ultra low emissions cars for tax years up to and including 2014-15 is replaced by an appropriate percentage of 5 per cent for cars with CO emissions 0 to 50 grams per kilometre. New section 139(2)(aa) provides an appropriate percentage of 9 per cent for cars with CO emissions of 51 to 75 grams per kilometre.
5.Subsections (4), (5), and (6) provide for the increase to the level of the appropriate percentage by 2 per cent in sections 139(2) (cars with engine emissions below that of the relevant threshold, but greater than 75 grams CO per kilometre); an increase in the level of the appropriate percentage for the relevant threshold in section 139(3); and for an increase in the maximum level of the appropriate percentage 139(4)(b).
6.Subsections (7), (8) and (9) removes the reference to and definition of the special percentage in section 140 ITEPA for cars without a CO emissions figure and also provides for an appropriate percentage of 5 per cent for cars which are not, under any circumstances, capable of emitting CO emissions when being driven.
7.Subsection (10) provides that this amendment has effect for 2015-16 and subsequent tax years.
Background
8.Section 139 of ITEPA sets out the basis for calculating the appropriate percentage for cars with CO emissions. The appropriate percentage multiplied by the list price of the car (adjusted for any taxable accessories) provides the level of chargeable benefit for company car tax for employees and of Class 1A NICs for employers.
9.From 6 April 2015, the graduated table of company car tax bands will provide for a 5 per cent band for cars with emissions of 0-50g CO per km, a 9 per cent band for cars with emissions of 51-75g CO per km, a 13 per cent band for other low emissions cars (76g-94g CO per km) with a 2 per cent increase for each rise in emissions of 5g CO per km from 95g CO to a new maximum of 37 per cent.
10.Section 140 ITEPA sets out the basis for calculating the appropriate percentage for cars without CO emissions. From 6 April 2015, the appropriate percentage for cars which are incapable of producing CO emissions under any circumstances when being driven will be set at 5 per cent, and will rise to 37 per cent for other cars.
11.On average, the level of CO emissions produced by company cars fell by more than 6g (-4.2%) in the last year. These changes support the Government’s commitment to reducing the UK’s carbon footprint.
