Alastair Kendrick, of MHA MacIntyre Hudson, puts forward the case for BIK reform.
The announcement of the 2% increase for benefit-in-kind for 2017/18 and 2018/19 gives employees certainty over the tax they will pay on their company cars in the medium to long-term.
It also puts further pressure on car manufacturers to counter the increase by producing more efficient engines.
However, looking at how the benefit-in-kind rates have increased, this is worrying. Taking the 125-129g/km band as an example, the rate next year (2014/15) will be 18%, in 2017/18 this becomes 24% and for 2018/19 it will be 26%.
Drivers will be partly cushioned from these increases if they renew their vehicle, because of the reductions in emissions being achieved by manufacturers.
I think a more radical approach is required, because the present basis of calculation of taxable benefit has simply had its day. Given the technology now available in cars, why can’t we move to a benefit system based on the price adjusted by the private/total mileage travelled in the tax year?
Clearly, this would be a fairer way of calculating what the benefit-in-kind should be. Furthermore, it follows the approach adopted in other countries in the EU.
I would expect the Government would wish to add some sort of levy for cars with high CO2 emissions and concessions for ultra-low emission vehicles, which if not too complex would be acceptable.
The Budget also confirmed the closure of the tax scheme that was adopted in the tax case of Apollo Fuels, which related to the leasing of a car by an employer to the employee and thereby avoiding a taxable benefit.
This should act as a reminder to those who have set up similar arrangements or an employee car ownership scheme where title to the vehicle does not transfer to the employee, because a taxable benefit on the car will arise during 2014/15.
It is no surprise that I am seeing a significant number of employers anxiously looking to move to an arrangement that ticks all the boxes with HM Revenue and Customs.