In 6th April 2012 Qualifying Low Emission Car (QUALEC) category will stop. Adept Vehicle Management examines the effect this will have on company car costs for both employers and drivers.

A ‘QUALEC’ is a car first registered on or after 1st January 1998 with CO2 emissions figure which does not exceed a statutory limit for the tax year, currently 120 g/km. For cars with a CO2 that falls in this category the relevant percentage used for calculating the company car taxable benefit is 10% for 2011/12 with the exception of cars with a CO2 of 75g/km or less. For these cars the relevant percentage is 5% and for cars which have zero emissions there is no charge. However Surcharges for diesel cars apply to QUALEC’s.

• What’s happening in April 2012?

From 6th April 2012, QUALEC will no longer exist as a category of car and the relevant percentage will be as per the table below. The effect this will have is to increase the scale charge amount for any cars with CO2 emissions between 100 g/km and 120 g/km. The scale charge is set to increase further from 2013/14 with bands 76-99 g/km upwards seeing a 1% increase.

Employers

• Employers will see an increase in Class 1A NI costs on the scale charge of cars with CO2 between 100 g/km and 120 g/km as a result of an increase in the relevant percentage used to calculate the scale charge.

Cost effect on the employee?

The employee pays Benefit in Kind (BIK) tax on the scale charge of the car at their marginal rate of tax (MRT). Therefore any increase in the CO2 relevant percentage used to calculate the scale charge will result in an increase in the amount of tax paid by the driver.

Employees

• Drivers who have cars with CO2 between 100 g/km and 120 g/km will suffer an increase in Benefit in Kind tax. The cost increases will apply to all cars on the road, not just cars ordered or delivered from the 2012/13 tax year.

Cost effect on the employer?

The employer will pay Class 1A National insurance on the scale charge of any car offered to an employee and made available for private use. The scale charge is calculated by multiplying the taxable list price of the car, plus the price of any options, less any capital contribution made by the driver by the appropriate percentage based on CO2 g/km. Therefore any increase in the CO2 relevant percentage used to calculate the scale charge will result in an increase in employers Class 1A NI cost. The examples in the table here shows the potential annual increase in costs for employers on cars with CO2 from 100 to 120 g/km.

Adept Vehicle Management Summary

For employers who run a fleet with a high number of cars with a CO2 of sub 120 g/km, it’s important to understand the effects of the CO2 on the Class 1A NI cost for the term of the car. Currently, all cars with CO2 between 100 g/km and 120 g/km will benefit from the QUALEC rate of 10% for petrol (13% for diesel), but from the 2012-13 tax year cars that fall in this bracket will attract a larger scale charge and associated Class 1A NI cost. In particular, cars that currently fall into the bands with 110 – 114 g/km CO2 and 115 – 120 g/km CO2 will be adversely affected.

In addition, where whole life cost benchmark entitlements, which includes employers NI, have been set using cars with sub 120 g/km CO2, we suggest it would be worth reviewing the effects of the 2012-13 change to allow for adjustments to be made to policy as appropriate. For drivers who are looking to choose their car, it’s recommended that they review the costs for the duration of the term.

They will need to account for a rise in the BIK tax they will pay from 2012-13 if they choose a car with emissions between 100 and 120 g/km CO2. The tax calculator on our Adept website will provide three years of BIK calculations, also the online quoting functionality financials section gives full term details of costs for the driver to clearly see the effect of the changes. Both the increase to employers NI and employees BIK will impact on all cars that are currently on order or already with a driver from the start of the 2012 tax year. It’s important that fleets and drivers understand and plan for any likely cost increases!

Call the Adept team today to arrange a fleet review meeting with the experts Tel 01782 813812