Regulations have been laid before Parliament, which reduce the appropriate percentage for calculating company car benefits by 2 per cent, where the car runs on E85.
ITEPA 2005, Part 3, Chapter 6 prescribes that the cash equivalent of a company car benefit is calculated as the list price multiplied by the appropriate percentage. The Car Benefits Regulations (SI 2005/2209) provide an added incentive to choose cars powered by alternative, environmentally friendly fuels. Under those Regulations, company cars capable of running on certain alternative fuels (for example, LPG) enjoy a reduction in the appropriate percentage compared to a petrol-only equivalent car. The principal aim of these reductions is to improve local air quality as well as to encourage early take up of this technology.
The Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) (Amendment) Regulations 2007 (SI 2007/3068) add one further reduction to those already in existence, for cars manufactured to be capable of running on E85. The reduction of 2 per cent, which was originally announced in the 2007 Budget, applies from 6 April 2008.
E85 is so called because it is an 85 per cent blend of bio ethanol, mixed with 15 per cent traditional petrol. Similar to bio diesel, bio ethanol is a petrol-like fuel derived from agricultural means. The fuel can be used in most petrol vehicles with only a very small modification. The fuel is extremely popular in Brazil, where it is predominantly sourced from sugar cane crops.
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