Fleet News

Budget 2004: Fleet News Analysis

Reform of company vans

THE Government has announced a 'major' deregulation of company van taxation.

Under the current rules, the benefit charge payable for a van available to an employee for private use is £500 (or £350 for a van that is four or more years old at the end of the tax year), a law that has been in place and unchanged since 1993. The charge also includes any private fuel provided.

The change announced today sees scale charges based on the type of private use introduced with a new charge for employer provided fuel.

From April 6, 2005 employees who have to take their van home and are not allowed other private use will not have to pay a benefit tax charge.

Where private use is unrestricted the existing £500 or £350 scale charge will apply dependent upon the age of the van.

However, from April 6, 2007 the discount for older vans will be removed and the scale charge for unrestricted private use will increase to £3,000 and if an employer provides fuel for unrestricted private use an additional fuel charge of £500 will also apply.

Self-employed van drivers are not affected by these new rules.

Company car tax

COMPANY car drivers are facing 10% increases in their tax bills in the next financial year - but it should come as no surprise.

Under the current carbon dioxide-based company car tax system, every year the emissions standards on which the tax is based has become more strict since it was introduced in the 2003/04 tax year.

For the 2004/05 tax year, vehicles will need to produce 149g/km or less of carbon dioxide to qualify for the minimum 15% tax band, compared to 155g/km for 2003/04.

Today the Chancellor announced that the level of CO2 emissions qualifying for the minimum percentage charge for a petrol car (15%) will be frozen at 140 grams per kilometre for 2006/07.

The fuel benefit tax charge applies the same percentage as the company car charge against a set figure. The 2003/04 figure of £14,400 will be frozen for 2004/05.

Company car drivers pay tax at their basic rate on a percentage of the P11d value of their car, which is defined according to the level of emissions their cars produce.

So a driver in a car producing 180g/km who would have tax on 20% of the car's P11d price for 2003/2004 will pay tax on 22% of the car's P11d price for 2004/2005 – a 10% tax hike.

For many drivers, this could mean their company car tax bill rising by £200 next year.

But, under an agreement with the fleet industry, the Government published the tax rates for 2004/2005 more than two years ago, to help fleets prepare long-term strategies for company cars.

Therefore, fleet managers should have been aware of the plans and consequently informed their drivers of their tax bill for several years in advance, before the driver signed up to a particular company car.

Several years ago, the Government published the tax rates for company cars for 2005/2006 as well, which will introduce a further hike when the minimum tax level of 15% is only available to cars producing 144g/km of CO2 or less.

However, fleet managers can ensure drivers avoid any tax rises by choosing low emission company cars, particularly diesels, which already meet the lowest emission standards for future years of the company car tax regime.

Additional note: The Government's ongoing evaluation of the new emissions-based system has found that in 2003 around 0.15 to 0.2 million tonnes of carbon were saved through reduced CO2 emissions. Company cars travelled an estimated 300 – 400 million business miles less in 2003. After one-off costs to implement the changes to the tax calculations, the Government says, employers are saving around £35 million each year in compliance costs as they do not have to keep records of business mileage.

A report of the initial evaluation findings will be published by the Inland Revenue shortly.

Sample company car tax increases
2003/2004 2003/2004
P11D CO2 BIK% Tax bill BIK% Tax bill Rise
Ford Mondeo 1.8LX 5dr £14,907 187 21 £3,130 23 £3,428 9.5%
Vauxhall Vectra 2.2 auto £17,127 226 29 £4,966 31 £5,309 6.9%
BMW 320d EIV £22,327 153 15 £3,349 16 £3,572 6.6%
Citroen C3 1.4LX £9,552 148 15 £1,432 15 £1,432 0%

BIK from April 2004
P11D % to be taxed CO2 (g/km) CO2 (g/km) CO2 (g/km)
2003/04 2004/05 2005/06
15* 155 145 140
16* 160 150 145
17* 165 155 150
18* 170 160 155
19* 175 165 160
20* 180 170 165
21* 185 175 170
22* 190 180 175
23* 195 185 180
24* 200 190 185
25* 205 195 190
26* 210 200 195
27* 215 205 200
28* 220 210 205
29* 225 215 210
30* 230 220 215
31* 235 225 220
32* 240 230 225
33** 245 235 230
34*** 250 240 235
35**** 255 245 240
Diesel supplements: * add 3% if a car runs solely on diesel and is not Euro IV compliant
** adds 2% if car runs solely on diesel
*** add 1% if car runs solely on diesel
**** maximum charge so no diesel supplement

  • NB: Exact CO2 figure should be rounded down to the nearest 5g/km

    Fuel duty

    DUTY rates for sulphur-free fuels will be increased in line with inflation from September 1, 2004, with the duty for ultra-low sulphur fuels set at 0.5 pence per litre above this level from the same date.

    The rate of duty for liquified petroleum gas has risen from 9 pence per kg (equivalent to 5.4p per litre) to 13.03 per kg (equivalent to 7.82p per litre), a rise of 2.1p per kg or 1.42p per litre.

    Natural gas used as a road fuel has risen from 9p per kg to 11.1p per kg (or 7.52p per litre), a rise of 2.10 per kg (or 1.42 per litre).

    ##Fuelduty04--none##

    The Chancellor promised three-years of certainty on the tax treatment of alternative fuels by:

  • providing a 20 pence per litre duty differential in favour of bioethanol and biodiesel, guaranteed until at least 2007
  • reducing the duty differential in favour of liquefied petroleum gases by the equivalent of 1p per litre for each of the next three years to 2007
  • freezing the duty differential in favour of natural gas at its current level (equivalent to 41 pence per litre) to 2007.

    Biofuels

    HM Customs and Excise will be consulting on the use of input-based taxation for biofuels in summer 2004.

    The Department for Transport will be publishing the Biofuels Directive consultation paper shortly after the Budget, which will include options on complementary regulatory measures, including a Biofuels Obligation for the transport sector.

    Vehicle excise duty

    The Chancellor announced a freeze on VED rates.

    Emergency service vehicles

    Emergency service workers, such as fire and ambulance personnel, who are required to take their vehicles home at night so they can respond quickly to emergencies will now no longer have to pay tax and National Insurance on this 'operational requirement'.

  • For full analysis on the implications of the 2004 Budget see Fleet NewsNet and Fleet News next week.

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