Fleet News

Drivers set for a BIK tax windfall

ALMOST 70% of company car drivers will pay less tax from April 6 when the new carbon dioxide-based company car tax comes into force, according to the largest ever tax survey of fleet drivers.

Lex Vehicle Leasing has analysed the CO2 ratings of 45,000 cars on its 90,000-vehicle fleet and found that up to 70% will incur lower company car tax bills under the new tax system, based on a typical mileage profile of 10,000 business miles a year.

Significantly, the survey only included cars that will still be on lease after April 6, so the tax windfall will be available to drivers without the need to change their company cars.

The average CO2 emissions per car across the huge sample is 188g/km, which should qualify for an average tax charge of 19% of a car's price from April.

But this figure is distorted by the peculiar impact of diesel cars. While diesel models have lower than average CO2 emissions, the three percentage point supplement for diesel cars (unless they meet the Euro IV emissions criteria) under the new tax system means the 'average' tax charge for the cars surveyed will be 21% of P11D price.

The most recent figures released by the Inland Revenue reveal that 56% of company car drivers currently face a benefit charge of 25% of their cars' price (because they drive between 2,500 and 18,000 business miles a year).

A further 12% pay tax at 35% of their cars' price (because they drive fewer than 2,500 business miles). 'There will be many fewer drivers worse off under the new tax changes than is being predicted by commentators,' said Jon Walden, managing director of Lex Vehicle Leasing.

Those drivers most at risk of being worse off are today's 18,000-plus business mileage drivers, who ostensibly face a sharp 40% tax increase, from 15% to 21% of their cars' price, according to the Lex figures. This assumes, of course, that drivers in each of today's three business mileage bands drive the same variety of cars.

In reality, however, the fuel efficiency demands of high mileage drivers are likely to have encouraged employers to restrict choice lists to cars with lower fuel consumption, and therefore lower CO2 emissions.

But there remains the danger of medium and high business mileage drivers being stuck in high emission cars, and seeing their tax bills escalate.

The Inland Revenue's promise that the new company car tax system will be revenue neutral is another way of saying the winners will balance out the losers, and the Lex Vehicle Leasing survey identified drivers at both extremes.

A 'perk' driver in a Mercedes-Benz E220 CDI Elegance, for example, will see his company car tax bill fall from 35% to 18% of the car's £27,426 price, saving the driver £1,865 net, or more than £150 per month.

And one middle mileage, lower rate tax payer with a Toyota Prius will also enjoy a substantial tax reduction from 25% to just 9% of the car's £16,336 list price - a net saving of £575 a year.

But the driver of a Ferrari 456 (which emits 495g/km of CO2) who today exceeds the 2,500 business mileage threshold will face a tax increase from 25% to 35% of the car's £80,000 tax rating (a price cap of £80,000 applies to company cars) which equates to an extra £3,200 net in tax a year.

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

Comments

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