Company car tax is changing – again – and if you don’t play by the rules you could face a nasty bill.
The goalposts for company car tax change every year, and every year drivers get caught out. It’s all too easy to order your vehicle on a typical three-year lease, or longer, and assume that your bills are going to stay more or less the same for the whole time – but they won’t.
Just like vehicle excise duty for private buyers, there’s a gradual increase in benefit-in-kind tax (BIK), which is the monthly tax that employees have to pay on their company cars. When the financial year changed in April, legislation changed with it.
BIK hasn’t actually changed all that much for 2013 – it’s only gone up by one percentage point, so if your car was previously in a 13 per cent tax band (which is about as low as it gets for a conventional diesel) chances are it will now be in a 14 per cent one.
Even so, BIK has gone up enough to mean that if you’re a lower rate (20 per cent) tax payer and you’re running a diesel D-segment car that costs around £30,000 (which is pretty average for a company car type) emitting around 140g/km, you’re looking at around another £60 on your annual bill – and it’s going to get bigger.
Higher rate (40 per cent) tax payers will have to shell out even more – twice the amount the lower rate tax payers fork out. Check out the table below for some examples of what you’ll pay on a selection of different cars – the rule is; the lower the emissions, and cheaper the list price of the car, the lower your tax bill will be.
Even bigger changes are afoot for the leasing companies that supply cars to businesses and the companies running them. This won’t mean much to the man on the street, but it will inevitably mean that anyone with a company car allowance will see a difference in the kind of vehicle that their employer lets them have.
Most companies operate a fleet policy, which means you’ll have a choice only of certain vehicles. The options you have can depend on a number of different factors, such as the kind of deals the business can get with manufacturers and what the vehicle will be used for.
This year’s tax changes, and the way things are heading in the future, mean it makes better financial sense for companies to set what’s known as a ‘cap’ on their fleet. This means there’ll automatically be a limit on the CO2 emissions an employee’s car can emit, so it costs them less to run.
Until this year, 160g/km was a popular cap, but the change in the write-down rules means that 130g/km will be far more popular from now on. That’s no bad thing if you’re watching your running costs, but it does mean that more powerful and thirsty cars could well be off limits for many.
So the next time your company car is up for renewal, it’s well worth making a decision based on its emissions and how they’ll fare when subsequent financial years kick in.
The data is published well in advance, so visit www.hmrc.gov.uk/cars before you take the plunge, making sure you don’t get caught out by the tax man.