Pre Budget Report 2009 - Employees

Bankers' bonuses

One of the expected headlines in the Pre-Budget Report was the attack on bankers' bonuses. The proposal makes it clear that there is no effect on the taxation of the banker at all: the bonus will suffer income tax and NIC according to the normal rules, and those tax charges will no doubt be subject to the normal attempts to avoid them using schemes dreamed up by tax lawyers. Instead, the PBR attack levies a tax on the bank paying the bonus (described under Business Tax).

Electric cars and vans

Cars which run on electricity do not emit carbon dioxide, so the normal rules for calculating a taxable benefit in kind on a company car cannot apply. Instead, a wholly electric car has been charged at 15% of the list price, and an electric van would be subject to the normal figure of £3,000 if private use is for more than home-to-work travel. The 15% figure was to be reduced to 9% for 2010/11, but instead both these benefit figures will be reduced to zero for 5 years from 6 April 2010: there will be no income tax for the employee, and no Class 1A NIC for the employer, on the provision of an electric car or van for an employee's private use.

Cars up to 2012

The benefit of a company car has been charged for some years using a percentage of the car's list price. This is determined according to the CO2 emissions rating of the car. In 2009/10, cars with a rating of up to 120g/km are taxed at 10% of the list price. Above that a 15% rate applies up to 139g/km; the percentage increases by 1% at 140g/km (i.e. 16%), 145g/km etc. to a maximum of 35%. Diesel cars suffer an addition of 3% to the figure for petrol cars, but are still subject to the same maximum.

We have already been told that the 1% increases will start at 135g/km (i.e. 16%) rather than 140g/km in 2010/11, and then at 130g/km in 2011/12, so most company car drivers will see an increase in the tax charge each year even if they are driving the same car.

Now we are told that the rules will change again on 6 April 2012 so that the 10% rate will apply up to 99g/km; at 100g/km, 105g/km, 110g/km and so on there will be a succession of 1% increases, rather than a jump straight to 15% at 121g/km. So from that date it will be harder to qualify for the lowest 10% charge, and the 16% level will be reached at 125g/km, representing a further 5g/km tightening of the rules.

As decisions taken on company cars may affect the employee's tax position for several years to come, it is important to take into account these tax increases coming over the next three years as well as the current position. 

Car Fuel

The taxable benefit of receiving free fuel for use in a company car is currently based on the same percentage that is applied to the list price for working out the car benefit itself - based on the CO2 emissions rating of the car - times a fixed figure of £16,900. This figure increases to £18,000 with effect from 6 April 2010, a rise of 6.5%. The taxable benefit will lie between £1,800 (10%) and £6,300 (35%), chargeable to income tax on the employee and Class 1A NIC on the employer.

As the rate applicable to an electric car is zero, recharging such a car using the company's electricity appears not to result in a chargeable benefit for the employee.

The chargeable figure for fuel provided in a company van will also rise from £500 to £550.

Works Canteen

There is no tax charge on the benefit to employees of providing free or subsidised meals in a works canteen, provided that the meals are "reasonable" and all employees have the same rights. HM Revenue & Customs have become aware of schemes which allow employees to give up some of their salary in exchange for canteen meals - in effect paying for their lunches out of pre-tax salary instead of net pay. The rules will be changed to prevent this scheme working, but they will only take effect in April 2011.