Fleet News

High mileage sting means drivers will pay extra £194 million

HEADLINE grabbing changes to company car tax in the Budget loom large in percentage terms but pale in real terms. A close analysis of Treasury forecasts shows the Government expects the UK's 1.7 million benefit-in-kind tax paying company car drivers to contribute an extra £194 million in the next tax year, while employers will pay an extra £73 million in National Insurance Contributions.

Only 1.55 million drivers will be affected, because 150,000 company car drivers do not exceed 2,500 business miles in a tax year and therefore continue to face a taxable benefit based on 35% of the list price of their cars. This means Chancellor of the Exchequer Gordon Brown expects the remainder to pay an average of £125 more per year under the new tax regime which comes into effect on April 6.

In real terms, a typical 23% tax payer with a £15,500 company car who drives between 2,500 and 18,000 business miles will pay an extra £60 per year or £1.15 per week, and the tax bill rises to £105 pa or £2 per week for a 40% tax payer. The same car driven over 18,000 business miles in a year would cost a 23% tax payer an extra £120 per year or £2.30 per week, and £209 or £4 per week for a higher rate tax payer. These figures, and those in tables 1, 2 and 3, reveal the sharp discrepancy in the way the new tax burden is distributed, with drivers covering between 2,500 and 18,000 business miles a year experiencing a 7.1% increase in their benefit in kind tax bills, while drivers exceeding 18,000 business miles will suffer a 29% tax rise.

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