Company Car Tax Bills to Rise, but Careful Model Selection Can Limit Impact
Tax bills for drivers of low emission company cars are set to increase by up to 50% from April 6, 2012 as a result of the Government’s radical restructuring of the benefit-in-kind regime.
The changes, which chiefly impact on drivers of cars with carbon dioxide (CO2) emissions of 100-120 g/km, also mean that employers will see Class 1A National Insurance costs increase.
Although the measures, which effectively marks the end of the so-called QUALEC (Qualifying Low Emission Car) category in the well-established emissions-based company car benefit-in-kind tax system, were announced in the 2010 Budget and confirmed by the coalition Government in last year’s Budget, many employers and employees remain unaware of the increases.
Steve Whitmarsh, managing director of specialist SME fleet management services provider Run Your Fleet, said:
“The cost increases will apply to all company cars on the road that are available for private use, not just cars ordered or delivered from the start of the 2012-13 tax year on April 6.”
“Despite the rises, company cars for employers remain a vital staff recruitment and retention tool and for employees they will find it impossible to run a similar car as cheaply privately.”
Nevertheless, he added:
“It’s important that fleets and drivers understand and plan for the cost increases. Although the tax changes were announced two years ago and should therefore not come as a surprise, anecdotal evidence suggests that many businesses and drivers remain in the dark.”
Since the introduction of a carbon dioxide emissions based company car tax system linked to the list price of vehicles was introduced in April 2002 drivers have paid benefit-in-kind tax on a scale charge ranging from 15% to 35% of the list price of their vehicle, although reduced payments have applied for lower emissions models (120 g/km and below).
On April 6 the lower end of the scale charge system is being revised, which will see the scale charges ranging from 10% to 35%.
That means drivers at the wheel of company cars emitting 115-119 g/km will see their benefit-in-kind tax bills rise almost 50% in the new financial year as vehicles are catapulted into the 14% tax bracket from the 10% threshold. Meanwhile, drivers of 120 g/km emissions models will have to fund a 50% rise as vehicles move into the 15% bracket from the 10% segment.
Employees driving a company car with carbon dioxide emissions up to 99 g/km will continue to see their tax bill unchanged (10%) with those at the wheel of vehicles with emissions of 100-104 g/km will move into the 11% tax threshold, 105-109 g/km (12%), 110-114 g/km (13%).
Ironically, drivers of cars with emissions of 121-124 g/km will see no increase in their tax bills as vehicles will remain in the 15% tax bracket, while those driving cars with emissions of 125 g/km or higher will see bills rise as emission thresholds tighten 1%.
Drivers of company cars with a zero CO2 rating – electric cars – will continue to benefit from a 0% benefit-in-kind tax charge; while the 1-75 g/km tax threshold remains at 5%; and the 76-99 g/km threshold at 10%. There also remains in place a 3% tax surcharge for drivers of diesel cars.
Taxable % of list price
*+3% for diesel cars
The impact on employees
The changes mean that, for example, the driver of a BMW 3 Series 318d SE saloon with emissions of 119 g/km – one of the most popular company cars on the road – will see an £18 a month tax increase (20% taxpayer) or for a higher rate taxpayer a £36 a month increase. As a result their annual company car tax bill will rise by £216 and £432 respectively.
The impact on employers
On the same car employers will see their Class 1A National Insurance (13.8%) costs increase by £149 a year. On a fleet of 25 such cars that means an annual cost rise of £3,725.
What should business and drivers do?
Mr Whitmarsh said:
“The structure of the tax system has consistently driven businesses and employees into low emission company cars in search of lower costs.”
“With the tax changes it is critical that businesses review their fleet policies and make adjustments to ensure the very lowest CO2 emitting cars are highlighted on choice lists, whilst also ensuring they remain fit for purpose.”
“Motor manufacturers are launching an increasing number of company cars with emissions even below 100 g/km so it is very possible to select models that remain within the 10% scale charge threshold.”
“Even if selecting a car above 100 g/km the lower the emissions the lower the tax bill. For example a Volkswagen Passat 1.6 TDi BlueMotion Tech SE saloon (114 g/km) means a £120 a year tax rise in 2012/13 for a 20% taxpayer and a £252 rise for a 40% taxpayer, but the increase is lower than on the BMW example (119 g/km).”
“However, that is no help for employees who are not due to change their company car in the near future. They will simply have to pay the tax rise due based on their existing vehicle.”
“But, what should be borne in mind is that we already know that in 2013/14 the tax screw will tighten further with the 10% rate starting at 95 g/km (instead of 100 g/km in 2012/13) and rising one percentage point for every 5 g/km rise in CO2.”