Fleet News

Drivers set to demand pay rises as new BIK taxation rules bite

BRITISH companies could be sitting on a wages 'timebomb' as hundreds of thousands of company car drivers demand pay increases to cover tax hikes caused by carbon dioxide-based company car tax. The shock warning comes in a new report, Business Car Expectations, from the Centre for Automotive Industries Management (CAIM) at Nottingham Business School, backed by HSBC Vehicle Finance (UK).

The survey of 365 fleets totalling more than 76,000 cars reveals growing hostility to the tax as drivers realise the extent of the changes they face as the introduction in April 2002 of a new company car tax system which focuses on charging drivers according to the emissions their cars produce. Currently drivers pay tax on 35% of the list price of the car, with discounts to 25% for covering more than 2,500 miles and 15% for more than 18,000 miles. Under the new system, drivers pay tax on CO2 emissions starting at 15% for 165 grammes per kilometre and rising 1% for every extra 5g/km of CO2, with a 3% supplement for diesels which are not Euro IV compliant.

A tax calculator launched by HSBC has shown a high-mileage driver of a £17,795 Ford Mondeo producing 195 grammes per kilometre of CO2 would see a 40% tax increase in the first year alone. Professor Peter Cooke, author of the report and head of the CAIM, said: 'The clear message that emerges is that organisations anticipate their drivers will be very unhappy with the new rules and will look to the organisation for some form of reimbursement, thus causing an inflationary situation.'

Tax calculations show a 22% taxpayer in the same Ford Mondeo would pay £234 a year extra tax, rising to £313 in the second year and £391 in the third as the starting point for the emissions based tax falls to 155g/km in 2003/4 and 145g/km in 2004/5. For a 40% taxpayer the increases are £427, £569 and £711 respectively, up to £60 a month. Inland Revenue figures reveal there are 540,000 company car drivers who cover more than 18,000 miles a year, who are almost guaranteed to see an increase in their level of taxation. Covering a basic £234 rise for 'Mondeo man' these drivers would cost British industry £126.3 million in increased salaries, rising to £211 million in the third year. The maximum 40% rise would cost £383.9 million.

A further 940,000 drivers who cover between 2,500 and 18,000 miles who could also see their tax bills rise, depending on the type of car they drive, while there are just 200,000 drivers in the sub-2,500 mile band who cannot see any increase on their current 35% tax level. Cooke said: 'This is not the end of the problem, as there are potential new taxes on company provided parking. Who is going to pay that? The message that this report brings is that we are in the lull before the storm. The industry is starting to wake up to the level of change is it going to face under the new tax system. I think there are going to be huge changes.'

  • How much tax will YOUR drivers be paying next year? Click here to work it out.

Leave a comment for your chance to win £20 of John Lewis vouchers.

Every issue of Fleet News the editor picks his favourite comment from the past two weeks – get involved for your chance to appear in print and win!

Login to comment


No comments have been made yet.

Compare costs of your company cars

Looking to acquire new vehicles? Check how much they'll cost to run with our Car Running Cost calculator.

What is your BIK car tax liability?

The Fleet News car tax calculator lets you work out tax costs for both employer and employee