Rupert Russell, publisher of www.comcar.co.uk, a specialist company car tax website looks at the quagmire of company cars and explains how to choose the right one.

Employers should provide help and guidance to staff choosing a company car.

Firstly it is important that the employee gets maximum satisfaction from such an expensive resource, and does not feel de-motivated by the tax cost. Secondly the company will pay National Insurance at 12.8% on the value of the car benefit (and fuel benefit if provided). Thirdly it is likely that the lower taxed cars will have lighter fuel consumption, lower running costs and improved environmental credentials.

Most car drivers will realise that company car tax and fuel benefit is based on the car’s price and CO2 emissions but the finer details of the tax system may not be understood. On top of this, selectors have to contend with the pricing and derivative structure imposed by the car manufacturers. To guide you through the mire, here are some thoughts:

1. Discounts are worse than useless

Big discounts or fleet cash back offers do not reduce the official list price on which the driver is taxed. You could go further and say that a high discount indicates that a driver is getting ‘less’ for the level of tax being paid.

If manufacturers were brave enough to reduce the official list price on overpriced cars, then company car drivers would benefit, but this is still rare. The best ‘tax value for money’ situation would be to drive a car sold at a premium to the list price, but this happens even more rarely.

A more practical strategy is to hunt out special edition ranges where, instead of cash discounts, a manufacturer adds large amounts of desirable kit at a minimal price. Of course this must still be an official version to be tax efficient. If the dealer throws in kit for free, this must still be priced up into the official list price.

2. Check the details

The CO2 details will be published along with new car publicity material to give you an idea of how much tax will be payable. Be aware that the figure could vary considerably according to bodystyle, transmission type and wheel size.

Even adding heavy options could push the car into a higher banding. Some car showroom staff will be able to explain the details, and some manufacturers will have clear brochures, but be prepared for some time consuming research particularly if non-standard wheels are being considered.

3. Fuel type

In trying to minimise the CO2, it is worthwhile looking out for what manufacturers are doing to help, as well as studying the data. Some possible strategies include:

• Switch from petrol to diesel. Many have already done this to benefit from the lower emissions from diesel cars, but watch out that the 3% penalty doesn’t cancel out the benefit, particularly when compared to some modern petrol engines.
• Even better, switch to a Euro IV diesel for a further 20% saving (minimum CO2 percentage is 15% rather than 18%) but the car must be registered by 31 December 2005 for this to apply.
• Better still, consider an alternative fuel vehicle such as the Toyota Prius or Honda Civic IMA at just 12%. LPG and CNG bi-fuels are also discounted.

4. Latest technologies

Manufacturers are working hard to find ways of improving efficiency and it is worthwhile having a test drive of models that may not initially appeal:

• Smaller engines fitted with turbochargers generate the same performance but fewer emissions than much larger engines.




• Detuned versions specifically aimed at company car drivers




• Lean burn petrol engines where fuel consumption and emissions have been prioritised.




• Those who prefer automatics should consider a CVT or semi automatic style. The latest designs can offer better performance and emissions than traditional manuals. Older auto boxes lose a lot on torque conversion and can increase the tax by 30% compared to the manual equivalent.




• Drivers should still test drive these because not all advances have been loved, and some early semi-automatic versions were quickly withdrawn due to lack of popularity.

5. The limits

Sadly for lovers of the graduated tax system, it is limited at both ends. For instance from a tax view there is no point seeking out petrol and diesel cars with CO2 emissions of below 140gCO2pkm because there is a minimum level of tax set at that point, though at least there is no minimum price.

At the top end there is both a maximum percentage of 35% and a maximum price for tax purposes of £80,000. This means that Ferraris and Maybachs are extremely tax efficient, since the majority of their list price falls outside of the scope of company car tax.

Summary

Getting the best value car for the tax paid will ultimately depend on your personal preferences for styling and performance. Only the tax cost can be measured in simple monetary terms but that will hit you on a regular monthly basis via the payroll and at least some guidance can be given for that!