Fleet News

Budget 2006: changes to BIK tax

HE may not have mentioned it in his statement to the House of Commons, but the small print of Chancellor Gordon Brown's Budget reveals changes to company car taxation.

Company car tax

The Government has today published a report on what it calls stage two of the company car tax evaluation. To view the report click here.

Key changes:

  • The threshold for the minimum percentage change rate for calculating benefit in kind from company cars will be reduced from 140g of carbon dioxide per kilometre to 135g/km from 2008/09.

  • A new lower 10% band for company cars with CO2 emissions of 120g/km or less will be introduced for 2008/09

  • A review of the taxation of employee car ownership schemes by HM Revenue and Customs because of their increasing popularity

    In response Alison Chapman, automotive tax partner at Deloitte, said: 'The introduction of the new 10 per cent band for company cars with CO2 of 120g per kilometre or less from 2008/09 should have little immediate impact on manufacturers.

    'Most manufacturers are keen to develop cars that are as environmentally friendly as possible, and recognise that in doing so, taxation and running cost advantages will encourage drivers to select their products. However, manufacturers have to consider whether producing significantly more sub 120g cars using current technology will attract enough customers to warrant increasing production, or, should they focus their efforts on new technologies such as hydrogen cells.'

    Vehicle excise duty

    The Chancellor heralded the changes as a ‘radical reform’ as he singled out highly polluting 'gas guzzlers' for tax increases.

    Taking effect from tomorrow a zero rate for the small number of cars with the very lowest emissions will be introduced. Instead of £75 for cars with the lowest emissions there will be a ‘significantly lower rate’ of £40.

    The details:

  • A new higher band of graduated VED (band G), set at £210 for petrol cars, will be introduced for the most polluting new cars (those above 225g of carbon dioxide emissions per kilometre) for example the BMW X5, Range Rover, Porsche 911.

  • The VED rate for the small number of cars with the very lowest carbon emissions (band A) will be reduced to £0 to encourage take-up and assist the development of the low carbon car market

  • VED rates will also be reduced for band B by £35 and C by £5, frozen for bands D and E, and increased by £25 for band F

  • Rates for pre-2001 registered cars in the lower band will be frozen with the higher band increased by £5

  • The reduced rate graduated VED for alternative fuel cars will be extended to include those cars manufactured to run on high blend ethanol (E85)

    The Government said 50% of cars will see their VED frozen or reduced in total. It said three million cars will pay VED of £100 or less.

    ‘Instead of just 300,000 motorists paying £100a year or less, 3 million will now pay £100 or less’ Chancellor Gordon Brown said.

    VED bandings

    VED Band CO2 Change Petrol Diesel
    A 100g and under -£65 £0 £0
    B 101-120 -£35 £40 £50
    C 121 to 150 -£5 £100 £110
    D 151 to 165 0 £125 £135
    E 166 to 185 0 £150 £160
    F 186-225 + £25 £190 £195
    G* 226+ + £45 £210 £215
    (* For new cars registered after 23 March 2006)

    To work out the VED rate for your car click here.

    Fuel duty

  • The traditional rise in fuel duty in line with inflation was – for the fourth successive budget - deferred until September 1 because of ‘continuing oil market volatility’.

  • Biofuels – the 20 pence per litre biofuels duty incentive has been extended until 2008/09.

  • LPG – From September , duty rates on LPG will increase by the equivalent of 2.25 pence per litre to reduce the differential with main rates by 1 pence per litre to ‘more accurately reflect the environmental benefits of the fuel’. Also, duty rates on natural gas will increase by the equivalent of 1.25 pence per litre, maintaining the differential with main rates.

    The Government also announced that the duty differential between LPG and main road fuels will be reduced by 1 pence per litre each year to 2008/09 and that the duty differential between natural gas and main duty rates will be maintained each year until 2008/09.

    Tom Fidell, director general of the LP Gas Association, said: 'This is a clear message of support for LPG for the long term which gives motorists and fleet managers the confidence to purchase LPG vehicles and contribute to a cleaner motoring environment'.

    Capital allowances for cars

    The Government is looking at further modernisation of the capital allowances for company cars. Options include incentives for the take up of cleaner cars, including introducing a new car pool with a range of first-year allowances for cars depending on carbon dioxide emissions. This would build on existing 100% first-year allowances for cars with very low emissions and reforms to VED and company car tax.

    A consultation document has been published. To view click here.

    The background and options:

    The Government wants to gain opinions from the fleet industry on modernising tax rules which restrict tax relief on business spend on cars worth more than £12,000.

    Currently, the car is not included in the general plant and machinery pool but accounted for separately, in its own pool.

    The writing down allowances are restricted to a maximum annual amount of £3,000 and when the car is disposed of, a balancing charge or allowance is likely to be generated.

    The Government has considered three options for reforming the current capital allowance rules for cars:

  • Option 1: Abolish the current restrictions and treat all cars in the same way as most other plant and machinery in the general pool

  • Option 2: Introduce a new car pool for all cars with a writing down allowance of less than 25%

  • Option 3: Introduce a new car pool for all cars with a writing down allowance of less than 25%, and a range of first year allowances for cars depending on CO2 emissions. This is the Government’s preferred option.

    The consultation period runs until September 22.

    VAT fuel scale charge

    The charge, for taxing road fuel when business cars are used for private motoring, is being adjusted with effect from May 1 to reflect changes in fuel prices.

    The company car fuel benefit charge calculation figure will be maintained at £14,400 in 2006/07.

    And finally, ‘beer and fags’

  • 9 pence increase on cigarettes
  • no increase on whisky
  • 4 pence increase on wine
  • no increase on champagne, sparkling English wine and cider
  • 1 pence increase in pint of beer

    And a word from the Conservatives

    Tory leader David Cameron said he welcomed the changes on carbon emissions because ‘I came up with them’.

    He said: ‘In a carbon-conscious world, we have a fossil fuelled Chancellor.’

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