April Tax Trap for Company Car Drivers

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Ralph Morton, Editor of Business Car Manager explains the change in tax for company car drivers, which will come into play this April.

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April 2012 company car tax changes: current sub-120g/km tax break disappears, increasing the amount of company car tax to be paid by business car drivers

This April there is a tax change that might have gone unnoticed and it involves business car drivers.

There’s a change in the banding system for company car tax that is designed to favour even lower CO2 emission business cars than before.

Alright, many probably think as a whole we're doing pretty well already. Average CO2 emissions have fallen dramatically and are down to 138g/km – a 23% drop compared to 2000.

If CO2 emissions don’t mean anything, turn it round the other way: lower CO2 emissions mean reduced fuel consumption. Research company Ricardo says that over the last 10 years, fuel consumption of the average new car has improved from 40.6mpg to 52.5mpg.

So, all well and good, then.

Sub 120g/km tax break ends:

Well, not quite. Back to this April’s company car tax change. Until the end of the current tax year, business cars with CO2 emissions below 120g/km qualified for a special company car tax rate of 10% if they were petrol, or 13% if diesel.

For the financial directors, these were called ‘Qualifying Low Emissions Cars’ – or Qualecs (which sounds too close to Daleks to be truly comfortable).

This special rate for sub-120g/km company cars will end, and from the beginning of the 2012/13 financial tax year, only those company cars with CO2 emissions up to 99g/km will qualify for the special rate.

It doesn’t stop there, though.

For the 2013/14 tax year, the lowest qualifying rate is reduced further. Company cars with CO2 emissions up to 95g/km CO2 will receive the lowest company car tax rate – see the Business Car Manager company car tax table for more.

What effect will this have on tax positions?

Good question. In a bizarre way, the changes actually penalise those drivers who have taken up the baton of lower CO2 emissions.

Let’s take one of the key business car which has qualified for this low emission status, the BMW 320d EfficientDynamics. Owners of the BMW 320d EfficientDynamics will have enjoyed lower company car tax rates as well as a great car all in one package.

Let’s have a look at the current 2011 Model Year car.

BMW 320d EfficientDynamics 2011/12

  •     CO2 109g/km, tax band 13%
  •     Tax payable £724 (20%) £1,448 (40%)

BMW 320d EfficientDynamics 2012/13

  •     CO2 109g/km, tax band 15%
  •     Tax payable £835 (20%) £1,671 (40%)

BMW 320d EfficientDynamics 2013/14

  •     CO2 109g/km, tax band 16%
  •     Tax payable £891 (20%) £1,782 (40%)

So for a 40% tax payer, within two years they will be paying £334 more in company car tax than when they started driving their BMW.

Want to keep on driving executive cars such as this, then drivers will have to take the tax rise on the chin. The alternative is to choose a more company car tax efficient vehicle – usually something smaller – to accommodate a lower company car tax allowance position.

And rather than identify sub-120g/km as the key tax break, aim for sub 99g/km, and preferably a sub 95g/km car to maintain your tax efficiency.

Expert commentary from Fleet Alliance on the changes to company car tax
“Forthcoming changes to the company car tax system in April will have a significant effect on the benefit in kind position of employees. In particular, those drivers benefiting from the current low emission tax discount will find themselves disadvantaged as the government changes its incentive low emission car policy. There will also be additional costs facing companies.

“We have just produced a White Paper that discusses these issues in some detail – readers can download a copy free. You can find it by clicking here: New White Paper shows effects of April tax changes.”

Resources:
Weboptimiser News: http://www.weboptimisernews.com
Business Car Manager: http://www.businesscarmanager.co.uk

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Conrad Swailes
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