The new tax system will be based on a proportion of a car's list price, ranging from 15% for the least polluting models - those with a CO2 rating of 135g/km or below - and will rise by 1% per 5g/km of CO2 emitted, to a maximum of 35% of list price. Early indications suggested this would heavily favour diesel vehicles which emit much lower levels of CO2 than their petrol equivalents.
But the Inland Revenue has now revealed plans to impose a BIK penalty on diesels to reflect the impact they have on local pollution through their emissions of nitrogen oxide and particulates. Sara Woollard, policy adviser to the Inland Revenue's Personal Tax Division, said: 'It is likely diesel will receive some kind of penalty. We realise that if we left the system as it is, diesel rates better than petrol on CO2, and it would be perverse to allow that with a fuel which is emitting far more local pollutants.'
She said the simplest way to penalise a diesel-powered company car would be the addition of a flat rate increase of probably 3% to the figure used to calculate a car's BIK tax charge. So a diesel car that should qualify for a tax charge of 20% of its list price by merit of its CO2 emissions, would actually incur a charge at 23% of its list price. In real terms this would increase the BIK tax paid by company diesel car drivers by between 9% and 20%, depending on the CO2 efficiency of their car - the more efficient, the bigger the hit.
Any penalty supplement for diesel will further confuse fleet managers who are attempting to make buying decisions today for cars they will still have on their fleets under the new tax regime. Any percentage loading for diesels would have a dramatic impact on many vehicles' BIK charge, with models like the Vauxhall Astra and Ford Mondeo switching from a company car tax saving to a loss by running on diesel rather than petrol.