Fleet News

NIC increase set to fuel demand for diesel

CHANGES to the National Insurance charging scheme set to be introduced next year could reinforce rocketing demand for diesel among fleet operators.

From next year, employers will be hit with a twin increase in the cost of providing company cars to their employees, but moving to low emission cars, particularly diesels, will offset the rise.

The increase affects employer National Insurance Contributions levied in two areas. The first is the NIC imposed on company car benefit charges that are set to rise as the carbon dioxide thresholds tighten. Higher tax bills mean higher employer NIC payments. Simultaneous with the company car tax rise at the start of the next financial year will be the one point rise in NIC rates from 11.8% to 12.8%.

Currently, company cars are taxed on a percentage of their P11d price dictated by their carbon dioxide emissions. The minimum tax charge is 15% for cars emitting less than 165g/km, rising by one point for every 5g/km increase in CO2 emissions.

Next April this minimum threshold falls to 155g/km, effectively spelling a two-point increase in the benefit charge attached to any car that emits more than 155g/km. For example, an employer would have to pay £387 this year in NIC payments for an employee driving company Volkswagen Passat 1.8T, emitting 199g/km of CO2. Next year, that will increase by more than 18% to £459 because of the double NIC increase.

However, a similar driver in a low emission 1.9 PD 100 Passat would still incur an increase in costs for the employer, but it would be much lower, rising from £323 to £351, an 8.7% increase, thanks to the lower benefit-in- kind tax bill of the low emission diesel-powered car.

The NIC cost gap between these two sample petrol and diesel models will therefore increase from £64 to £108.

For an average 50-vehicle fleet running on petrol, the increase would mean the NIC charge for providing company cars would rise from £19,350 to £22,950. By comparison, a diesel fleet running the same number of cars would see its NIC payments rise from £16,150 to £17,550.

The NIC increase has been branded a 'stealth tax' because it is a lower profile way to increase the Government's coffers than taking controversial measures, such as increasing income tax.

Alison Chapman, a tax partner with Deloitte & Touche, said: 'Like the introduction of company car tax, this will take quite a while to feed in to the market. Companies are not prepared for what is going to happen.'

How employer NIC bills will increase from April 2003
Car P11D price FUel 2002/03 2003/04
Volkswagen Passat 1.8T £15,620 petrol £387 £459
Volkswagen Passat 1.9 PD 100 £15,235 diesel £323 £351
Saving per car by running diesel £64 £108

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