Car Benefit Charge - New reduction for bioethanol cars

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1 November 2007

The cash equivalent of a company car for tax purposes is a percentage of the car's list price. The appropriate percentage ranges from 15% to 35%, according to the car's CO₂ emission rating. The appropriate percentage may be reduced if the car is capable of running on alternative, environmentally friendly fuels. For example, the appropriate percentage for "hybrid" cars that run on both petrol and electricity is reduced by 3 percentage points.

From 6 April 2008, cars that run on bioethanol, or on a mixture of 85% bioethanol and unleaded petrol (commonly known as "E85"), will be entitled to a reduction in the appropriate percentage of 2 percentage points. To give effect to this change, relevant amendments have now been made to the Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) Regulations 2001.

Bioethanol is a liquid biofuel made from starch plants (e.g. corn and wheat), sugar plants and some cellulose plants (trees). Production involves fermentation, distillation and dehydration. As a fuel, bioethanol can be used as a 5% to 85% blend with petrol. Petrol containing only 5% bioethonal can be used in all petrol engines. Engine modifications are needed, however, if the E85 blends are used.

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Further information:
The Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) (Amendment) Regulations 2007
Memorandum to the Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) (Amendment) Regulations 2007

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