Company car and car fuel benefits

A car an employer makes available for an employee’s private use is a benefit in kind: its cash equivalent is taxed as employment income (ITEPA 2003 s. 120), and so is fuel provided for its private use (s. 149). The employer pays Class 1A National Insurance on both (SSCBA 1992 s. 10). The model calculates both benefits from 2020-21.

Inputs¶

Each person can have one company car. The inputs default to no car, so a simulation that sets none of them is unchanged.

The car_* inputs describe the person’s own car for vehicle excise duty and play no part here.

Data that fills these inputs needs to know three things:

• Set the CO2 figure with the list price. The model cannot tell a missing figure from 0 g/km, so a car with a list price and no CO2 figure is taxed at the zero-emission rate. A car of the ELECTRIC fuel type is taken to emit 0 g/km whatever figure is entered.

• Keep the benefits out of pay. employment_income must not also hold them, or they are taxed twice and wrongly bear employee NICs. The SPI’s EPB (expenses payments and benefits in kind) includes them, so a dataset that adds EPB to pay, as policyengine-uk-data’s SPI records do, must take the car and car fuel benefits out of it.

• Projected years. The list price, capital contributions and payments for private use grow with CPI when a dataset is projected to later years. CPI stands in for a new-car price index, which the OBR does not forecast.

Calculation¶

company_car_appropriate_percentage applies s. 139: a rate for 0 g/km, rates for 1 to 50 g/km by electric range (one rate from 2028-29), a rate for each band from 51-54 to 70-74 g/km (65-74 g/km from 2028-29), and from 75 g/km a base rate plus one point for each full 5 g/km, up to the maximum. A diesel car not meeting the Euro 6d (RDE2) standard adds 4 points, within the maximum (s. 141); a car that cannot emit CO2 takes no supplement. In 2020-21 and 2021-22 a car first registered on or after 6 April 2020 takes the lower rates of s. 139A (Finance Act 2020 ss. 9 and 10). The appropriate percentage is zero for a person without a company car (has_company_car).

company_car_benefit follows the steps of s. 121: the price, less capital contributions up to £5,000, times the appropriate percentage, reduced in proportion to the days the car is unavailable, less payments for private use, and never below zero. car_fuel_benefit is the appropriate percentage of the car fuel benefit charge multiplier (s. 150), reduced in proportion to the days the car is unavailable. It is nil for a car that cannot emit CO2. benefits_in_kind adds the two.

Where the benefits go¶

• Income tax. taxable_employment_income adds benefits_in_kind, so the benefits reach income tax, at Scottish rates for a Scottish taxpayer, and adjusted net income: the personal allowance taper, the High Income Child Benefit Charge, and the £100,000 limits of Tax-Free Childcare and the extended childcare entitlement. They count as relevant UK earnings for the limit on pension tax relief (HMRC PTM044100).

• Not student loan income. Student loan repayments and the Plan 2 interest rate leave the benefits out: Self Assessment excludes Chapter 6 car benefits (SI 2009/470 reg. 29(4)(e)), and PAYE deducts repayments from Class 1 earnings (reg. 41).

• Not earnings for Class 1 or the means tests. The benefits are not in employment_income or employment_benefits, so employee Class 1 NICs and the earnings of Universal Credit (UC Regulations 2013 reg. 55(2)(a)), Housing Benefit (HB Regulations 2006 reg. 35(2)(a)) and Council Tax Reduction leave them out. Those tests still deduct the income tax on them, which is tax paid in respect of the employment (reg. 55(5)(b)) and which PAYE collects from pay. Universal Credit takes earnings as the lowest slice of income, so it deducts all of that tax. Housing Benefit and Council Tax Reduction deduct earnings’ share of the person’s tax, and count the benefits with pay in that share; with other income, part of the tax on the benefits falls on the other income, as part of the tax on pay does. The Childcare Offer for Wales’s gross income lists its sources one by one, and benefits in kind are not among them.

• Employer National Insurance. ni_class_1a is the Class 1A percentage of benefits_in_kind, and ni_employer adds it to secondary Class 1, so it reaches gov_tax. The Class 1A percentage is the secondary percentage for the year, except 14.53% in 2022-23.

• No household bears Class 1A. employer_cost, and the employer NI incidence variables that recompute it, cover pay and secondary Class 1 only. So the fixed-cost pay response and the capital and consumer channels leave out Class 1A and any change in it: it stays with employers as revenue. A reform that changes Class 1A, such as the 2030-31 rise below or a rise in the employer rate, raises gov_tax by more than it lowers household incomes. Passing Class 1A through like secondary Class 1 is #2752.

2030-31¶

Finance Act 2025 s. 6 sets the rates for 2029-30 and subsequent tax years, so the baseline keeps them for 2030-31: 9% for 0 g/km, 19% for 1 to 50 g/km and a 39% maximum. Budget 2026 raises every rate for 2030-31 by one point, to a maximum of 40%, to be legislated in Finance Bill 2026-27. The company_car_tax_rise_2030 scenario applies that rise:

from policyengine_uk import Simulation
from policyengine_uk.scenarios import company_car_tax_rise_2030

reformed = Simulation(situation=situation, scenario=company_car_tax_rise_2030)

policyengine_uk.scenarios.company_car_tax_rise_2030.COMPANY_CAR_TAX_RISE_2030 holds the same changes as a parameter-changes dictionary.

The car fuel benefit charge multiplier is in the baseline for 2027-28 at the £30,200 Budget 2026 announced, before the Treasury order is made. That is the annual CPI uprating, which the Budget does not score, so a pre-Budget baseline has it too; the 2030-31 rise is a policy decision Budget 2026 scores (Table 6.1, row 86). The fuel part of the rise depends on the multiplier.

Not modelled¶

• Vans and van fuel (ITEPA 2003 s. 154 onwards).

• Optional remuneration arrangements (s. 120A), shared cars (s. 148) and pool cars (s. 167).

• Classic cars (s. 147), cars without a CO2 emissions figure (s. 140) and cars first registered before 1 January 1998 (s. 142).

• Fuel provided for only part of the year (s. 152(2)).

• Other benefits in kind.

The survey data does not fill these inputs yet, so a population run scores the company car benefits at zero until a dataset does.