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Isle of Man: Taxation of Company Cars and Fuel – Proposals to update procedures on basis of environmental impact
Monday, May 19th, 2008
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The Income Tax Division, on 13 May, published a document outlining proposed changes to the taxation of company cars and fuel provided to employees by their employers. In line with the Treasury Minister’s announcement in his 2008 Budget speech, the proposals for a thoroughly updated system are based more on environmental impact and aligned with the new simplified annual vehicle duty bands used by the Department of Transport.
In order to allow businesses time to prepare for this change, the proposed new system is expected to become operational from 6 April 2009.
The current arrangements for calculating the car and fuel benefits relate principally to the vehicle’s original market value (OMV) and its cylinder capacity, although the car benefit can be increased for low mileage and reduced for high mileage.
The proposal document highlights the following problems with the current system of taxing company cars and fuel:
- it is cumbersome and time-consuming for employers to operate
- business mileage is regularly omitted, estimated or incorrect when details are submitted and this leads to further enquiries being made with the employer
- all vehicles with an OMV over £29,000 result in the same scale charge (a £90,000 car would be deemed to have the same benefit as one costing £30,000)
- higher business mileage reduces the charge – from an environmental viewpoint this may encourage additional car use
- the statutory tables do not reflect the current cost of cars and fuel.
As part of the review, the Income Tax Division considered mirroring the systems being operated in other jurisdictions. However, it became apparent that doing so would place even more of an administrative burden on local employers. For example, car benefit in the United Kingdom is calculated in a series of numbered steps, requiring employers to consider a number of factors such as price, accessories, CO2 emissions, availability, fuel type and employee contributions – each of which often has associated complex rules. The fuel benefit charge is calculated by multiplying a set figure for each year by the percentage for CO2 emissions for each particular vehicle that is used when calculating the car benefit charge.
In October 2007, new vehicle duty rates were introduced by the Department of Transport which reduced the annual vehicle duty for cars below 1,000 cc from £60 to £50. The duty for cars with engines between 1,000 cc and 1,200 cc remained at £60, for cars with engines between 1,200 cc and 5,000 cc the annual duty increases incrementally and a new band of £300 was introduced for cars with engines above 5,000 cc. This approach was considered to be a ‘Greener Vehicle Duty’ and was intended to encourage the use of smaller cars with better fuel economy and lower emissions.
Consequently, the proposed new system will have the same objective as the vehicle duty changes, namely to encourage the use of smaller vehicles with better fuel economy and lower CO2 emissions and therefore reduce the impact on the environment. It will be simple, easy to comply with and straightforward for employers to administer.
The proposed table of charges for the 2009/2010 tax year is as follows:
| Cylinder capacity (cc) |
Car Rate |
Fuel Rate |
| 1000 or less |
£800 |
£800 |
| 1001 – 1200 |
£1,100 |
£950 |
| 1201 – 1800 |
£3,600 |
£1,500 |
| 1801 – 2500 |
£5,000 |
£1,750 |
| 2501 – 3500 |
£7,000 |
£2,000 |
| 3501 – 5000 |
£10,000 |
£2,250 |
| More than 5000 |
£12,000 |
£2,500 |
| Electric cars (regardless of cylinder capacity) |
Nil |
Nil |
Further information:
Benefits in Kind – Taxation of Company Cars and Fuel – Proposal Document
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