Ranges of CO2 emission ratings of current Volkswagen models. Ranges of CO2 emission ratings of current Volkswagen models.

It makes sense to know what model ranges offer tax-efficient options. Volkswagen's model range starts with CO2 emissions of 99 k/gm of CO2 in the efficient Polo BlueMotion up to 348 k/gm in the luxury Phaeton.

Because most of the tax regimes in the UK are now based on CO2, these ranges are not only beneficial for corporation tax, but for Vehicle Excise Duty and driver company car tax as well.

Callout 1 - Corporation Tax

Where corporation tax is payable, the main point is that for tax relief benefits, all forms of "purchase" are treated under one tax system, while all forms of leasing are treated under a different system. The overall rates of this tax relief were reduced (for all asset types) from April 2008, and from April 2009 there will be different and less favourable treatment of cars with a rated CO2 level of over 160 g/km. This will cause potentially large relative differences in the way the rentals are Calculated.

Full details are outside the scope of this Guide, but these are important issues that need to be considered at the Finance Director level. The main point to make is just this: the after-tax whole-life costs of typical mainstream fleet cars could be different by around ?700 each, depending on the CO2 value. The forthcoming (April 2009) changes see a major threshold of treatment right at the centre of many fleet choice lists.

Employers should consider their allocation policies very carefully (see Section 4 in this series; The Importance of a Fleet Allocation Policy) to avoid significant and unexpected after-tax costs. Expertise and powerful calculators are needed to establish the "best" solution - although using Volkswagen models across the policy can help significantly (see Table 1 below)

Callout box 2 - Driver benefit in kind tax

To calculate the benefit charge on which the driver will pay company car tax, there are 2 key figures and 1 condition. The figures needed are: official list price of the specific car (undiscounted/retail price as per published price list, plus delivery charges plus the full retail cost of any accessories) and the CO2 rating (as fixed in the car's V5 registration document). The condition is the fuel type (petrol/ diesel/ hybrid/ dual-fuel etc).

The simplest way to explain is to look initially at petrol-engined cars. The system starts with the list price, and multiplies this with the relevant percentage value from a scale of 22, based on the CO2 figure. These percentage figures range from a low of just 10% for the very cleanest/ lowest emitting cars to 35% for any car with a CO2 of 235 g/km or over. For any car with a CO2 of less than 121 g/km the percentage rate is just 10% of the list price. Anything with a CO2 rating between 131 and 139 (inclusive) has a tax liability of 15% of the list price; then for every 5 g/km band over 140 the figure increases by 1% of list price, up to 235 g/km, when it is capped at 35% of the list price.

Where the fuel type is diesel, there is a 3% surcharge applied to the scale (although still capped at 35% maximum). There are also discounts of 1 or 2 percentage points for other fuel types such as LPG or hybrids, as defined by HMRC. Full details can be found on the Revenue & Customs web-site at www.hmrc.gov.uk/cars.

These scales can change at Budget times, with the new rates applying to all vehicles and not just new registrations. The fleet industry has secured something of an undertaking that government will provide the rates 3 years ahead, to ensure that fleet selection can be made with a degree of certainty about the tax liability for most of the car's life. A copy of the latest Company Car Tax Guide 2008/9 can be downloaded from www.volkswagen.co.uk/fleet/cars/tax-calculator.

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