A change in company car tax regulations could catch businesses and their employees by surprise over the coming months.
Businesses across the UK and their employees are being reminded about changes to the benefit in kind (BIK) charge system for company cars. It is thought that many thousands of people in smaller and medium sized companies who took possession of company cars under the previous regulations could be surprised by an increase in their tax charge at the start of the new tax year.
The knock-on effect of the BIK amendment means that Employers National Insurance contributions will also rise when the changes come into force in April.
In recent years, many manufacturers had launched vehicles with CO2 emissions of 120g/km or lower as that qualified drivers to be taxed at the 10% tax threshold (13% for diesel cars).
Of these, more than 200 car models currently have an output of exactly 119g/km and this includes some of the most popular choices of company cars such as:
Drivers of these diesel vehicles will now be taxed at 17% instead of 13%, rising to 18% in 2013.
From April onwards, only vehicles with CO2 emissions of 99g/km or below will qualify for the new 10% tax threshold (13% for diesel), a significant reduction from the previous 120g/km lower rate threshold.
Figures from Lex Autolease, the UKs largest fleet supplier, show that 45% of new cars ordered have CO2 emissions of 100-120g/km, which would not allow them to qualify for the new 10% tax threshold (13% for diesel) going forward.
In fact, Lex Autolease's figures show that only 8% of new cars ordered would actually qualify for the new threshold from April despite there being 200 model/trim vehicles with emission levels at 99g/km or below available on the UK market.
Lex Autolease also revealed the possible tax increase faced by company car users. Drivers of a BMW 318d (SE to Sport trims), for example, will face a yearly tax increase of £216 if they are a 20% taxpayer, or £432 if they currently pay the 40% tax rate.
Paul Lippitt, Principal Consultant at Lex Autolease commented: "Senior management may be less concerned if they have recently taken delivery of a low emission vehicle that no longer qualifies, as they may be more able to stomach the additional BIK, but the cost increase will come as a shock to middle and junior managers."
As the change to the lower rate company car tax threshold also impacts Employers National Insurance contributions, Paul adds: "Those businesses with larger fleets will notice a measurable increase in costs on their bottom line. Unfortunately, most lease periods extend for three or four years, so there is no getting away from the impact in a hurry."
"In fact the threshold will continue to reduce in 2013/14 to 94g/km, so companies need to be aware there are further planned tax increases in the pipeline."
Lex Autolease has therefore advised drivers and fleet managers to not just think about sub-99g/km vehicles for their next vehicle, but even consider sub-95g/km vehicles to allow for the proposed further reduction in April 2013.
Paul concludes: "Whilst existing fleet vehicles will be caught by these changes, fleet managers should pro-actively review their company car policies and consider selecting benchmark vehicles going forward so that the impact on new vehicle orders is mitigated as far as possible".
With over 100 years' combined experience in the fleet industry, Lex Autolease is the UK's leading fleet management and funding specialist, and currently own and manage around 1 in every 100 vehicles on UK roads. It has a long track record of winning industry and customer awards for its proposition and service.
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