Some of the most important changes ever seen in company car taxation will come into effect over the next six months, offering savings worth millions of pounds for companies and their drivers.

Fleet managers attending the Hit for Six South Conference in Oxford last week heard that two key areas of taxation will bring a combination of threats and opportunities to fleet operators that require expert handling.

Firstly, fleets are being urged to start planning now for the new 10% benefit-in-kind tax band which comes into force in the 2008/2009 tax year from April.

The new low tax band, a 25% reduction on the current lowest band, will apply to new and old cars which have carbon dioxide emissions of 120g/km or less, with a 3% supplement applying to most diesel vehicles.

Nigel Underdown, head of transport advice at the Energy Saving Trust, told more than 150 delegates at the event: “We saw some of the biggest changes in the fleet market when carbon dioxide taxation was introduced. Since then, I don’t feel the tax regime has driven much more change.

However, the 10% tax band will bring change, although not many fleets have tuned into it yet.”

The potential savings are significant and already major manufacturers are rushing to launch sub-120g/km cars to target fleets.

For example, a 40% tax-paying driver in a BMW 118d SE costing £20,685 and emitting 119g/km of CO2 would currently pay tax based on 18% of the car’s list price, or £124 a month, but from April this would fall to £89, a £420 annual saving.

In addition, the company’s Class 1A National Insurance Contributions charge on the benefit would fall from £476 to £344 – a £132 saving.

Across a 100-vehicle fleet, the low-tax choice savings for drivers and the company over a typical three-year period add up to around £165,000.

But the tax challenges facing fleets don’t end there, the conference heard, as the pre-budget report next month is expected to bring major changes to capital allowances.

Under new proposals, cars emitting more than 165g/km of CO2 could have the tax they can offset from purchasing and leasing over a typical three or four-year fleet cycle drastically reduced.

By contrast, the rules already state that cars in the sub-120g/km tax band benefit from 100% capital allowances, helping companies improve their tax position.

Gary Hull, director of employment solutions at PricewaterhouseCoopers, said: ‘The pre-budget report could bring some of the biggest changes we have ever seen in the taxation of company cars.’

Tuesday – full coverage of Hit for Six North and South conferences.