Company car tax perk to return

I say this following the Chancellor's announcement in the PBR that Employees and Directors who are provided with an electric powered company car for their private use will pay no tax on the benefit from 2010/11 through to 2014/15.

There will also be no Class 1A National Insurance Contributions (NICs) on the taxable benefit of such company cars which must be propelled solely by electricity.

I admit I'm not a petrol-head but you'd have to be very keen on 'real' cars to choose to pay thousands of pounds of tax on a conventional company car or to run your own car when there's an option of a free to use company car - with no tax charged thereon.

And the absence of Employer National Insurance Charges will make the idea popular with employers too. Remember that the effective tax rate on high earners will be 50% next year and NI rates are going up too so the savings in prospect can be quite significant.

The range of electric cars available in the UK is growing all the time. Many currently have only 2 or 3 doors but Mondeo Man won't have to wait long for larger electric cars especially given the likely increase in demand after today's announcement. Earlier this year the Government announced that Motorists will be offered subsidies of up to £5,000 to encourage them to buy electric or plug-in hybrid cars.

I would admit that the potential attraction of electric cars is probably limited to those for whom a company car is a 'perk'. Electric cars currently have a limited range of less than 100 miles thus making them less than suitable for sales reps and others who drive long distances for business purposes.

This new facility to have a tax free company car, will need to be factored into the decision making process for businesses trying to decide which is the most attractive business structure going forwards. Other related PBR announcements include the deferral of the 1% increase in small companies rate of CT, forthcoming hikes in employer's NICs and the freezing of personal allowances.