From April next year company car tax will be based on a combination of a percentage of the car's list price according to the level of its carbon dioxide emissions. The charge will build up from 15% of the car's price to a maximum of 35% in 1% steps for every 5g/km of CO2 with diesel cars paying a 3% supplement compared to petrol-engined cars 'to take account of their higher emission of particulates and pollutants which have adverse impacts on local air quality'.
The Government published draft regulations last year to waive the supplement if diesel cars achieved Euro IV emission standards. No vehicles on sale in the UK currently meet the standard. The regulations also introduced discounts for alternatively-fuelled vehicles chosen as company cars. The change to the company car tax system will save up to one million tonnes of carbon a year by 2011/12 as the Government seeks to reduce 1990 carbon dioxide emission levels by 20% by 2010.
Of the estimated 375 billion miles of car travel in the UK each year, some 16% are driven for business use. Although high-mileage drivers covering more than 18,000 miles will be heavily penalised under the new system, because their tax rate is 15% and is set to rocket to about 24% for 'average' fleet car, leasing companies have revealed that the changes are a bonus for many fleet drivers.
One potential way to keep tax bills down from 2002 would be to consider alternative fuels under the new regimes, with electric vehicles paying tax based on 9% of list price. Hybrid vehicles get a standard 2% discount and a further 1% discount for every 20g/km emissions fall below the minimum limit and bi-fuel cars get a 1% discount and a further 1% off for every 20g/km.
Click here for coverage of the key changes - brought to you in association with ARVAL PHH.
- Comment and in-depth analysis in this week's edition of Fleet News - out on Thursday.