What is a company car?

A car is a company car where it is made available by the employer to the employee or employee's family; made available without any transfer of ownership in the vehicle to the employee or employee's family; made available by reason of the employment; available for private use.

CO 2- be a winner Since April 6,2002, car CO 2emission levels have been used as a means of calculating the company car tax benefit.

The income tax charge is based on a percentage of the car's price graduated according to the level of the car's carbon dioxide emissions measured in grams per kilometre (g/km).

The extent of the charge ranges from 15% of car list price to 35% of list price.

The clear tax saving tip, when the company car comes up for renewal, is to find out what the CO 2emission level is of the new car is, since this figure is at the core of the tax charge. The lower the CO 2level the less company car tax is payable.

Petrol or diesel?

Apart from generally better fuel consumption over petrol versions, the main attraction of company diesel cars is that they have far lower CO 2emission levels than their petrol driven equivalents.

Naturally this reduces the company tax charge.

It is not all good news though. The government has imposed an effective 3% surcharge for diesel cars, to reflect that diesel cars emit pollutants other than CO 2, up to the maximum charge of 35% of list price.

A top tax saving tip is look out for a diesel car that is approved to what is known as "Euro IV emissions standards".

These cars do not attract the 3% diesel car benefit surcharge.

Electric and hybrid cars For employees opting for more esoteric vehicles there are various reductions available from the standard car benefit charge applicable to petrol fuelled cars.

Car or cash - beating the system The change to a CO 2based system has created new winners and losers. The losers are those with high business mileage. Previously they were charged at 15% of car list price.

The winners are low mileage drivers who were previously charged at 35% of car list price.

This has led to drivers either making sure they change to a car with low CO 2emissions or consider alternatives. The most straightforward alternative is a cash allowance from the employer with the employee claiming (tax/National Insurance free) business mileage allowances from the employer under the Inland Revenue's Authorised Mileage Allowance Payments (AMAP) scheme.

At up to 40p per mile for the first 10,000 business miles and up to 25p per mile thereafter, AMAP's, when used in conjunction with a car cash allowance, may prove financially beneficial.

The major tip here is that before simply jumping ship drivers need to calculate if taking a cash allowance really is a money saver. There are a number of Internet sites - such as www.channel4.com/4car/ buying-guide/cash-for-carscalculator_t.jsp - that can help by removing a lot of the number crunching.

Employee car ownership schemes (ECOS) These schemes are a more complex alternative to simply taking a cash allowance from the employer, and if set up correctly, the employer will not be regarded by the Inland Revenue as providing the employee with a company car.

ECOS schemes attempt to emulate the provision of company cars through car providers offering "one stop" shopping. A typical package may include: an extensive choice of cars; a choice of finance methods; flexible maintenance arrangements; insurance for cars and other circumstances such as ill health or redundancy.

The potential benefits include: protection against future increases in car taxation; the opportunity to purchase a car using employer negotiated discounts; savings can be passed on by employer to employee Employees in ECOS schemes are able to claim mileage allowances under the AMAP scheme. The combination of ECOS and AMAP may be more financially advantageous than a cash allowance and AMAP or taking a company car.

The self employed If you work for yourself and run a car for business purposes you can either claim Capital Allowances on the car and actual running/maintenance costs or adopt AMAP mileage rates as a simpler alternative, when claiming an expenses deduction in your accounts.

Records of business mileage would need to be kept.

Is it a van or a car?

The current company van tax benefit of £500 for vans under four years old is a far more appealing proposition than the tax benefit for a company car.

But the desire to drive the family around in a transit may not be overwhelming.

However, publicity has been given recently to vehicles known as "double cab pickups" such as the Mitsubishi L200. These vehicles usually have high quality cabs with front and back seats as well as a flat load area at the back.

The Inland Revenue has confirmed that double cab pick-up vehicles will be treated as vans for tax purposes providing they are constructed to legally carry a payload of 1 tonne or more. For VAT purposes these vehicles are treated as commercial and VAT can be recovered.

There are companies such as Land Rover which have specialist divisions that carry out fundamental and permanent changes to vehicles that were originally designed as passenger carriers. After the work has been carried out the vehicles are registered as commercial and thus regarded as vans for tax purposes.