Car Tax Benefits

Business Mileage

The car benefit charge (35 per cent of list price) will be reduced by

• one third, for business mileage between 2,500 and 17,999 miles a year
• two thirds, for business mileage of 18,000 or more a year

These discounts do not apply to 'second cars'. The car benefit of 'second cars' will only be reduced if the employee's business use of it is 18,000 miles or more a year, and then the discount is one third. Where two cars are made available to an employee at the same time, the 'second car' is the one used least for business travel by the employee.

If a car is only available for part of the year the mileage limits of 2,500 and 18,000 are reduced proportionately.

A business journey is one which an employee is necessarily obliged to make in the performance of his or her employment. This means journeys which involve travel from one place of work to another.

'Business mileage' does not normally include the journey between an employee's home and work.

Older Cars

Where a car is four or more years old at the end of the tax year, the car benefit (ie the taxable benefit of the car, less any reduction for business mileage) is then reduced by one third. Measure the age of the car from its date of first registration: ie, cars registered before 6 April 1991 will start to qualify for a reduction in 1994-95.

Older Cars Example
Car price: £12,500
Business miles: 9,500
Taxable benefit of car: 35% of price £4,375
less: one third for business mileage £1,458 = £2,917
less one third for age of car £972
Car benefit charge £1,945

Cars available for only part of the year

The car benefit charge is reduced proportionately if the car is unavailable for part of the year, for example if it is purchased part way through the year. The car benefit will also be reduced if the car is not available for a continuous period of at least 30 days.

Contributions By Your Employee

Capital contributions by employees towards the cost of the car or accessories will reduce the price of the car for tax purposes, pound for pound - up to a limit of £5,000, including VAT. This will apply to contributions which the employee made in the past towards a car which is still available to the employee after 5 April 1994. For examples, see overleaf.

More Car Tax Advice and Information

• Car Tax Advice Introduction
• Benefit in Kind Rate Chart
• Car Tax Calculator
• Car Tax Details
• Car Tax Benefits
• Employee Contributions
• Car Tax FAQs