Changes to QUALEC Category of Car

Definition

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 (3%) for diesel cars apply to QUALEC's.

Qualifying low emission cars (QUALEC) can qualify for100% capital allowances and therefore the cost maybe deductible for tax purposes. In addition, where an employee is provided with a QUALEC as a company car, they will be only be taxed on 10% of the list price. Therefore if an employee is provided with a QUALEC with a list price of £7,000, the company may receive a corporation tax deduction of £7,000 and the employee will be taxed on a benefit of £7,000 x 10%= £700 A basic rate taxpayer will then have a tax bill of £140.

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 change to the scale rates published by the Revenue. 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

Example

A vehicle with an emissions factor of up to 120 g/km will currently attract a benefit in kind of 10% of its manufacturer's list price. For 2012/13 the benefit will rise to 15% of its list price and for 2013/14 to 16%. If the car is a diesel there will be a 3% surcharge across all emission ranges.