Benefit in Kind - Company Vehicles

Summary

The request sought internal Treasury communications regarding the Income Tax (Benefits In Kind) (Car and Fuel) Order 2024, specifically asking for tax impact analysis and alternative proposals. The response disclosed a document reviewing four options for calculating vehicle benefits, including inflation adjustments and CO2-based systems, but noted a lack of data to estimate additional tax revenue for commercial vehicles.

Key Facts

• The Treasury reviewed four options for calculating Benefit in Kind charges for cars, ranging from inflation-adjusted cylinder capacity rates to UK-style CO2 emission percentages.
• Option 1 and Option 2 proposed increasing current scale rates by 50% to align with inflation since 2009/2010.
• Option 3 suggested a system based on list price multiplied by a percentage derived from CO2 emissions, similar to UK rules.
• The Treasury stated it does not hold data to estimate the additional tax due from charging commercial vehicles, relying instead on anecdotal evidence of significant private use.
• Electric vehicles were identified as a challenge under cylinder capacity systems due to the lack of CC values, requiring alternative calculation methods like battery power or market value bands.

Data Disclosed

• 2024-04-09
• 2024-05-17
• 2009/2010
• 50%
• 68 pages
• 2 documents

Original Request

Please provide a copy of all internal communications (for the avoidance of doubt this includes presentations, emails or any other form of written communication) within Treasury that resulted in the issue of the Income Tax (Benefits In Kind) (Car and Fuel) Order 2024. I am specifically looking for: Analysis of expected increases in tax receipts arising from the changes How many individuals would be affected by the changes Any alternative proposals which may have been considered How the specific requirements of the Order were determined - e.g. comparison with previous Isle of Man rules and comparison with existing UK rules

Data Tables (33)

Full Response Text

2 3. Charge certain commercial vehicles in exactly the same way a cars from the options listed above but allow a percentage discount to discount for extent of business use. We do not hold any data to estimate the additional tax due but there is anecdotal evidence that there is significant private use of vans that would be subject to a charge. I am happy to discuss before your Treasury meeting  Dave   1 BIK REVIEW OF CARS AND COMMERCIAL VEHICLES
CARS Overview of method of options considered for cars Option 1: Current scale rate set by car cylinder capacity with scale rates increased by inflation since 2010. Option 2: Scale rate set by car cylinder capacity with different tables for expensive cars and non- expensive cars. Option 3: List price of car multiplied by percentage set by reference to the car CO2 emissions. Option 4: List price of car multiplied by percentage set by reference to the car cylinder capacity. Detailed explanation of each options OPTION 1: Keep current system and increase rates Method – scale rate set by car cylinder capacity with scale rates increased by inflation since 2010. Leave the scale rates as they are but increase by 50% to bring in line with inflation. The scale charges have not been updated since 2009/2010. Since 2009/2010 inflation has increased, therefore each cash equivalent amount should be increased in line with this to give a higher and more accurate value. As well as this, a charge would be introduced for electric cars, however electric cars do not have CC values and so this would have to be calculated a different way. I propose that we either set one cash equivalent amount to cover all electric cars or base this off of a measure of the battery power such as Kw/ph.
Pros • This option would be easier for ITD as it would not generate further queries on calculations as the values would be set out and easy to understand • We receive revenue from electric cars as there are potentially more going to be bought in the future Cons • Nothing taken into consideration for C02 emissions • No consideration or extra charge for expensive cars (unless a tick box to increase charge by a percentage based on original MV ) OPTION 2: Use current system, increase table rates for inflation, add additional higher table for expensive cars and electric vehicles. Method – scale rate set by car cylinder capacity, different tables for expensive cars. Leave the scale rates as they are, based on CC, but increase by 50% to bring in line with inflation. However have additional tables: Document 3 2 Table 1 Same bands of CC plus increase by 50% to bring into line with inflation. This table however would only be for cars with a Market value when new up to a certain cost.
Table 2 Same bands for CC but for cars over a certain market value when new – this table would have higher values than table 1. Table 3 Electric vehicles table Charges purely based on bands of market value when new Pros • Takes into consideration the more expensive cars – they are charged more • Still simple for the employer to understand • We receive revenue from electric cars as there are potentially more going to be bought in the future Cons • Nothing taken into consideration for C02 emissions • Classic cars may be more complicated as could be worth more now than when bought new • Online services and guides would need to be updated OPTION 3 – introduce a new system similar to UK based on CO2 emissions and the original market value of the car. Method – List price of car multiplied by percentage set by reference to the car CO2 emissions. Move away from CC to calculate the cash value and move more towards the UK’s charging provisions. This option would use the list price (price when purchased brand new) of the vehicle. The list price would then be multiplied by a certain percentage based on the CO2 emissions of the vehicle.
For example, we set a percentage to multiply the list price by if above a certain amount of emissions and a different percentage if emissions are below that amount.
An additional measure that could be introduced with this option is to reduce the value calculated using the list price and CO2 emissions by the age of the vehicle. For example, reduce the value by a certain percentage per the number of years old the vehicle is.
Pros 3 • CO2 emissions taken into consideration so greener • Online services would calculate the charge as long as the Employer puts in the emissions figure • This option would mean there was more of a reflection of the vehicle value and would also mean higher charges for those vehicles that produce more emissions, Cons • Electric cars are included but because they have no CO2 emission the amount charged on them could be very low. • More information needed from ITD as guidance and Employers would need to look up the various percentages to use from our published information. • More queries for the team as this is new and more complicated for the employer • More complicated for employers not online or who send paper/schedules when employer taking the charge. Potentially more mistakes by employers. • It may not be easy to find the CO2 emissions value for every vehicle and different websites/retailers may give different values. This means there could be discrepancies with this option. • Extra revenue would be hard to predict as we do not know what type of cars are being provided to employees – could end up with less revenue if rates not set right OPTION 4: Introduce a new system based on cylinder capacity and the original market value of the car. Method – List price of car multiplied by percentage set by reference to the car cylinder capacity. Find the list price of the vehicle but multiply this by a percentage based on the CC of the vehicle rather than the CO2 emissions.
For example, we set percentages for certain CC groups almost like the current scale rates. The list price of the vehicle is then multiplied by this percentage to get the cash value.
The additional measure of reducing this value for the age of the vehicle could also be introduced if wanted.
As well as this, a charge would be introduced for electric cars, however electric cars do not have CC values and so this would have to be calculated a different way. I propose that we either set one cash equivalent amount to cover all electric cars or base this off of a measure of the battery power such as Kw/ph.
Pros • It would bring both the engine size and the value of the vehicle into the calculation, meaning the more expensive the vehicle and the higher the CC, the higher the charge. • It is easier to find the CC of a vehicle than it is to find the CO2 emissions and we know that this works due to using CC on the current scale rates. • We receive revenue from electric cars as there are potentially more going to be bought in the future 4 Cons • Nothing taken into consideration for C02 emissions COMMERCIAL VEHICLES (VANs & LORRIES) Current commercial vehicles are strictly charged to a benefit in kind as an asset available for an employee’s private use and charged at 20% of the asset value when first made available. By concession the Division will allow the car scale charges to be used if this is in the clients favour.
Although commercial vehicles are chargeable many vehicles are taken out of charge by the benefit in kind exemption order. There is anecdotal evidence that this exemption is being abused and many commercial vehicles are being used extensively for private use. Overview of method of options considered for commercial vehicles
Option 1: Leave as is. Option 2: Charge certain commercial vehicles in exactly the same way a cars from the options listed above Option 3: : Charge certain commercial vehicles in exactly the same way a cars from the options listed above but allow a percentage discount based on the split between business and private use. This could be banded discounts rather than an exact calculation. Detailed explanation of each options for commercial vehicles OPTION 1: Leave as is Pros • No change require Cons • Loss of potential revenue • Unfair private use of vans which are often now individual vehicles of choice rather is not addressed OPTION 2: Charge certain commercial vehicles in exactly the same way a cars from the options listed above Method – treat commercial vehicles in the same way as cars and charge in accordance with the same charging provisions selected from the options suggested for cars earlier in this document. Effectively align the charging of cars and commercial vehicles. 5 Pros • Potential for additional revenue from vans that are now being used for more than incidental use by employees • Same rules for cars and commercial vehicles • Addresses unfair private use of vans which are often now individual vehicles of choice rather is not addressed Cons • Exemptions order would need changing if vans are charged • Will require change in legislation for charging provision Does not recognise genuine business use OPTION 3: Charge certain commercial vehicles in exactly the same way a cars from the options listed above but allow a percentage discount to discount for extent of business use Method – treat commercial vehicles in the same way as cars and charge in accordance with the same charging provisions selected from the options suggested for cars earlier in this document. Effectively align the charging of cars and commercial vehicles but allow a discount from the scale charge based on extent of business use. This could be an exact percentage split or banded discount (50% for some business use, 75% mostly business use. Pros • Potential for additional revenue from vans that are now being used for more than incidental use by employees • Same rules for cars and commercial vehicles but discount due for extent of business use would mean charge would be more targeted at private use. • Addresses unfair private use of vans which are often now individual vehicles of choice rather is not addressed Cons • Exemptions order would need changing if vans are charged • Will require change in legislation for charging provision. • No data is available to project the potential additional revenue • Would not be popular with employees who have to take a commercial work vehicle home as no parking at the work place. Analysis of the last complete tax year shows the following data for car and fuel charges Cylinder capacity of car (in cubic centimetres) Cash equivalent in respect of car Cash equivalent in respect of fuel Electric car (not hybrid) 0 0 1,000 or less 800 800 1,001 to 1,200 1100 950 1,201 to 1,800 3600 1500 1,801 to 2,500 5000 1750 2,501 to 3,500 7000 2000 3,501 to 5,000 10000 2250 More than 5,000 12000 2500 Cylinder capacity of car (in cubic centimetres) Number of Car Number Scale Fuel Charges Electric car (not hybrid) Unknown Unknown 1,000 or less 19 10 1,001 to 1,200 15 11 1,201 to 1,800 89 61 1,801 to 2,500 84 44 2,501 to 3,500 30 18 3,501 to 5,000 4 3 More than 5,000 2 2 % Increase scale charges 50 Cylinder capacity of car (in cubic centimetres) Car - Current BIK Cash Equivalent Car- Increased Cash Equivalent Electric car (not hybrid) Nil Unknown 1,000 or less £15,200 £22,800 1,001 to 1,200 £16,500 £24,750 1,201 to 1,800 £320,400 £480,600 1,801 to 2,500 £420,000 £630,000 2,501 to 3,500 £210,000 £315,000 3,501 to 5,000 £40,000 £60,000 More than 5,000 £24,000 £36,000 Unknown Vehicles £397,996 £596,994 Total £1,444,096 £2,166,144 Tax at 20% £288,819 £433,229 The category of these addition vehicles is unclear as the amount declared is for a part tax year and the underlying vehicle data is not available. *The cash equivalent for these 121 vehicle totals £397,996 for 2021/22 so it is reasonable to assume this value will increase in line with any agreed % increase in scale charges Cylinder capacity of car (in cubic centimetres) Fuel - Current BIK Cash Equivalent Fuel - Increased Cash Equivalent Electric car (not hybrid) Unknown Unknown 1,000 or less £8,000 £12,000 1,001 to 1,200 £10,450 £15,675 1,201 to 1,800 £91,500 £137,250 1,801 to 2,500 £77,000 £115,500 2,501 to 3,500 £36,000 £54,000 3,501 to 5,000 £6,750 £10,125 More than 5,000 £5,000 £7,500 Total £234,700 £352,050 Tax at 20% £46,940 £70,410 Vans & Commercial Vehicles Unknown Unknown Tab name = Option 1 Document 4 O2 emissions (grams per km) Electric mileage range % Multiplier £20,000 £30,000 £40,000 £50,000 £60,000 £70,000 £80,000 £90,000 £100,000 £110,000 £120,000 £27,800 0 — 2 £400 £600 £800 £1,000 £1,200 £1,400 £1,600 £1,800 £2,000 £2,200 £2,400 £556 1 to 50 130 and above 2 £400 £600 £800 £1,000 £1,200 £1,400 £1,600 £1,800 £2,000 £2,200 £2,400 £556 1 to 50 70 to 129 5 £1,000 £1,500 £2,000 £2,500 £3,000 £3,500 £4,000 £4,500 £5,000 £5,500 £6,000 £1,390 1 to 50 40 to 69 8 £1,600 £2,400 £3,200 £4,000 £4,800 £5,600 £6,400 £7,200 £8,000 £8,800 £9,600 £2,224 1 to 50 30 to 39 12 £2,400 £3,600 £4,800 £6,000 £7,200 £8,400 £9,600 £10,800 £12,000 £13,200 £14,400 £3,336 1 to 50 less than 30 14 £2,800 £4,200 £5,600 £7,000 £8,400 £9,800 £11,200 £12,600 £14,000 £15,400 £16,800 £3,892 51 to 54 — 15 £3,000 £4,500 £6,000 £7,500 £9,000 £10,500 £12,000 £13,500 £15,000 £16,500 £18,000 £4,170 55 to 59 — 16 £3,200 £4,800 £6,400 £8,000 £9,600 £11,200 £12,800 £14,400 £16,000 £17,600 £19,200 £4,448 60 to 64 — 17 £3,400 £5,100 £6,800 £8,500 £10,200 £11,900 £13,600 £15,300 £17,000 £18,700 £20,400 £4,726 65 to 69 — 18 £3,600 £5,400 £7,200 £9,000 £10,800 £12,600 £14,400 £16,200 £18,000 £19,800 £21,600 £5,004 70 to 74 — 19 £3,800 £5,700 £7,600 £9,500 £11,400 £13,300 £15,200 £17,100 £19,000 £20,900 £22,800 £5,282 75 to 79 — 20 £4,000 £6,000 £8,000 £10,000 £12,000 £14,000 £16,000 £18,000 £20,000 £22,000 £24,000 £5,560 80 to 84 — 21 £4,200 £6,300 £8,400 £10,500 £12,600 £14,700 £16,800 £18,900 £21,000 £23,100 £25,200 £5,838 85 to 89 — 22 £4,400 £6,600 £8,800 £11,000 £13,200 £15,400 £17,600 £19,800 £22,000 £24,200 £26,400 £6,116 90 to 94 — 23 £4,600 £6,900 £9,200 £11,500 £13,800 £16,100 £18,400 £20,700 £23,000 £25,300 £27,600 £6,394 95 to 99 — 24 £4,800 £7,200 £9,600 £12,000 £14,400 £16,800 £19,200 £21,600 £24,000 £26,400 £28,800 £6,672 100 to 104 — 25 £5,000 £7,500 £10,000 £12,500 £15,000 £17,500 £20,000 £22,500 £25,000 £27,500 £30,000 £6,950 105 to 109 — 26 £5,200 £7,800 £10,400 £13,000 £15,600 £18,200 £20,800 £23,400 £26,000 £28,600 £31,200 £7,228 110 to 114 — 27 £5,400 £8,100 £10,800 £13,500 £16,200 £18,900 £21,600 £24,300 £27,000 £29,700 £32,400 £7,506 115 to 119 — 28 £5,600 £8,400 £11,200 £14,000 £16,800 £19,600 £22,400 £25,200 £28,000 £30,800 £33,600 £7,784 120 to 124 — 29 £5,800 £8,700 £11,600 £14,500 £17,400 £20,300 £23,200 £26,100 £29,000 £31,900 £34,800 £8,062 125 to 129 — 30 £6,000 £9,000 £12,000 £15,000 £18,000 £21,000 £24,000 £27,000 £30,000 £33,000 £36,000 £8,340 130 to 134 — 31 £6,200 £9,300 £12,400 £15,500 £18,600 £21,700 £24,800 £27,900 £31,000 £34,100 £37,200 £8,618 135

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