A leading accountancy firm has contradicted the views of many fleets by claiming that cash allowance schemes could rise in popularity as a result of planned Government changes to the benefit-in-kind (BIK) tax system from April 2015.
A tightening of BIK tax rates was announced in the spring Budget alongside the ending of special tax breaks for electric and low emission cars.
Those changes, says KPMG tax partner Harvey Perkins, mean that BIK tax bills for employees opting for company cars will rise significantly.
As well as hitting company car drivers, there are fears that the new rules will hamper the Government’s bid to encourage the take-up of zero and low emission cars.
That concern has already been voiced by the British Vehicle Rental and Leasing Association, which has assembled a ‘Business Car Taxation Taskforce’ to develop lobbying strategies and technical arguments against the tax changes.
Chief executive John Lewis said: “Tax incentives for reducing fleet emissions have worked too well and the Government is worried about falling revenues. But these measures are ill-advised, unfair and over aggressive.”
The new measures will result in the appropriate percentage of list price subject to BIK tax increase by two percentage points for cars emitting more than 75g/km of CO2, to a maximum of 37% in both 2015/16 and 2016/17.
From April 2015, the five-year exemption for zero carbon and ultra low carbon emission vehicles will come to an end.
The appropriate percentage for zero emission and low carbon vehicles will be 13% from April 2015 and will rise to 15% in 2016/17.
Perkins said: “We could see a shift away from company cars, including those funded via salary sacrifice, if the new rules are introduced.”
And after figures released by HMRC showed a downward trend in the number of company cars on which BIK is paid, from 1.2 million cars in 2004/05 to 950,000 vehicles in 2010/11, the tax changes could drive down numbers further.
Perkins continued: “In recent years vehicle CO2 emissions have been falling faster than BIK tax rates have been increasing while income tax rates have stood still. Therefore, the company car has become more attractive than cash.
“A decade ago it was worth employers and employees doing the maths to see whether they were financially better to take cash or car.
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