None of these changes are new – all have been announced in previous Budgets for implementation now – but they will still affect monthly pay packets. The most obvious change is that the company car benefit in kind tax rates become more stringent by 5g/km of CO2 emissions. The 15% starting point (18% for diesel company cars) commences at 125g/km from the 2011/12 tax year; last year it was 130g/km. The effect will be to bump up a band most company cars – and increase the benefit in kind payable.
For example, the company car tax band for the 139g/km C02 Mercedes C-Class saloon C200 CDI BlueEfficiency Sport rises from 19% to 20%, increasing the benefit in kind value from £5552 to £5844. It’s marginal, but it will have an effect – like all other creeping tax increases.
Expensive car cap removed
Small business company directors, though, are more likely to notice the profound effect of the price cap removal for expensive cars. Until now, there was an £80,000 limit on car list prices for benefit in kind company car tax. So if you drive, say, a £125,000 Aston Martin DB9 its list price for company car tax purposes was just £80,000. From April 2011, that changes. The effect is a dramatic rise in benefit in kind value. For that same Aston Martin DB9, the benefit in kind value rises from £28,000 to £43,416 – or a 36% increase.
In particular, where small business owners and company directors need to watch is if they run a high value secondhand used business car. For example, a 2005 Porsche 911 Turbo S 3.6 996 might have a used retail price of £41,950 according to Glass’s Guide, but its price for company car tax purposes will be £99,300 – its cost new in 2005.
However, it should be noted, these changes do not affect you if you are self-employed or run your car through a partnership.
Hybrid discount disappears
Along with discounts for flex-fuel cars and bi-fuel cars, hybrid cars will now be assessed on their CO2 emissions alone without a 2% ‘technology discount’. The biggest impact we think will be on SME directors running a car like the Lexus RX four-wheel drive hybrid. The company car tax band for a Lexus RX 450H SE-I rises from 15% to 19% in the 2011/12 tax year, representing a benefit in kind value rise of £1929 to £9164.
“It might have a small impact on business demand for the RX,” admits Jon Williams, managing director of Lexus, “although we’re a bit short of cars so there’s pressure on our availability anyway. Next year there’s a refresh to the RX and the powertrain is good anyway, because it’s under the 160g/km tax break. But we mustn’t be complacent.”
Change in NICs for business owners
So far we’ve concentrated on personal company car tax rises; but the new 20011/12 tax year also brings a rise in the business cost for SMEs running company cars because employers face an increase in National Insurance Contributions from 12.8% to 13.8%. “In many ways the impact of National Insurance is hidden. It doesn’t grab the headlines or provoke protests like fuel duty. But, for businesses large and small, it will have a far bigger impact on the bottom line than fuel pump price increases.
“We estimate that NICs will account for almost 60% of the total tax increase and the key way to really tackle this is by getting your drivers into less polluting vehicles. Anybody looking to order a new car now, should be looking even closer at its performance in terms of taxable emissions.”
And that’s the point for both small business owners and company car drivers: taxable emissions count. The lower the CO2 emissions, the lower the tax take. When you are deciding on which business cars your employees can have, or which company car to choose if you are a business car driver, pay attention to the CO2 emissions. The lower they are, the less tax you will pay.
Ralph Morton, www.BusinessCarManager.co.uk