Tax reduction for biofuel goes to House of Commons

Government plans to reduce the taxable benefit on green vehicles that run on bioethanol fuel or a mixture of bioethanol fuel and unleaded petrol, have been laid before the House of Commons.

A statutory instrument will amend the Income Tax (Car Benefits) (Reduction of Valuation Appropriate Percentage) Regulations 2001, so that employees provided with cars running on bioethanol or a mixture of bioethanol fuel and unleaded petrol (commonly known as E85) will be entitled to a 2% reduction on the taxable benefit from 6 April 2008.

The amendment, which was first unveiled in the Budget in March this year, will also reduce the class 1A national insurance (NI) that the employer pays.

Inez Anderson, tax director at accountancy firm Smith & Williamson, said that although the amendment won’t have a direct impact until P11D forms are completed for 2008/09, employers should take it into account now.

She said: “I think it is quite important for employers looking at their company car schemes and how they might update them to remember this, and that it potentially has a benefit for them as well as reducing the taxable benefit for their employees.”