In the Budget, Chancellor of the Exchequer Gordon Brown outlined the introduction of a tougher lower limit to qualify for the minimum benefit-in-kind tax band for company cars to be introduced in 2005/06.
The current threshold for a vehicle's carbon dioxide emissions to qualify for the 15% BIK tax band is 155-159g/km, reducing to 145-149g/km from 2004/05, with a similar tightening of the ceiling for the 35% maximum BIK rating from 255g/km to 245g/km. However, from 2005/06 the lower limit will be set at 140-144g/km – a 5g/km reduction on the previous year.
In some cases, drivers could see their tax bills rise by between a quarter and one-third if they do not change to a low emission car over the next few years, industry experts claim.
Brown did not announce how the rules would change beyond 2005, but said an evaluation programme to gauge the environmental impact of the rules was under-way and would influence decisions on the level of future reductions in limits. Brown said in his Budget statement: 'Early findings from the evaluation show that the reform is already having a positive influence on behaviour.
'Over half of employers who provide company cars have already changed their policies as a result and 85% of employers providing company cars have said that they support the environmental principles behind the reform. Most company car drivers are aware of the reform and the majority of these understand that the charge is now based on carbon dioxide emissions.
'Independent surveys and opinion polls support the conclusion that the reforms are leading to significant reductions in carbon dioxide emissions from company cars.'
SMMT chief executive Christopher Macgowan said the tightening of company car tax bands in 2005/6 had been announced before the full effects of the new system had been evaluated, and that Government plans for future changes must be subject to thorough consultation with industry. He added that failure to do so could deter business and fleet registrations, reducing domestic demand in the new car market.
Macgowan said: 'The Budget has not provided future transparency for key vehicle taxes. Government must commit to a long term regime for 'cleaner' fuel incentives, company car tax and VED to allow manufacturers to plan the introduction of new vehicle technologies.'
|BIK from April 2003|
|% of P11D to be taxed||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)|