Tax breaks for green vehicles

Making your next company vehicle a low-emissions model will qualify you for a range of tax breaks - as well as helping the environment. Afsheen Latif reviews the savings you can make by going green
According to the Energy Saving Trust, annual carbon dioxide (CO2) emissions from UK road transport have doubled to 38.5 million tonnes since 1970. The Government is hoping to cut this figure by offering businesses incentives to buy environmentally-friendly vehicles.

"Businesses should seriously consider a low-carbon vehicle, not only to minimise costs, but also to avoid increasing fuel prices in the future," says Jonathan Murray, deputy director of the Low Carbon Vehicle Partnership.

Capital allowances

If you buy a low-carbon vehicle, you will be eligible for a capital allowance of 100 per cent in the first year, if the car costs less than £12,000 and produces less than 120 grammes (g) of CO2 per kilometre (km). Vehicles costing more than £12,000 will qualify for an allowance of 25 per cent.

However, not all businesses will be in a position to benefit: if you are looking for a van, you are unlikely to find one with emissions low enough to qualify for the full capital allowance.

"Low-carbon cars are currently quite small," Murray explains. "The Toyota Prius, for example, is one of the most efficient cars on the market but is only available as a saloon."

Vehicle excise duty (road tax) exemptions

If your car produces less than 100g/km, you will be exempt from road tax. "But the rate goes right up to £300 a year for the most inefficient vehicles - those producing more than 225g/km," notes Murray. "And Gordon Brown, the Chancellor, has announced that this will rise to £400 a year from 2008."

Reduced company car tax

"You pay tax on only 15 per cent of the vehicle's value for cars producing less than 140 g/km," Murray states, "but that increases by one per cent for every five grams of CO2 your vehicle emits, up to a maximum of 35 per cent of its value."

For a high-emissions vehicle worth £20,000, this will mean paying company car tax of up to £1,400 a year, at the 20 per cent small-business rate. A low-emissions vehicle of the same value will cost just £600 a year - a saving of £800.

From 2008, owners of cars with emissions of less than 120 g/km will save even more - paying company car tax on just ten per cent of the vehicle's value.

Other benefits

If your low-carbon vehicle is dual-fuel, you will qualify for a 100 per cent discount on the London Congestion Charge. "Eight other authorities are planning to trial road pricing, too," reveals Murray, "and we are likely to see discounts for low-carbon vehicles.

"But the biggest incentive to move to low-carbon cars is the competitive advantage it could give small businesses," he stresses. "A lot of large companies are insisting their suppliers meet their own standards. Investing in fuel-efficient technology could help give your business the edge if you are tendering for a contract with a large organisation."