BE prepared for future changes to your company car tax bill as HMRC introduces changed benefit in kind rates. Editor Ralph Morton files this special report.WE all like a shiny new car. There’s a wonderful feel-good factor – the pleasure of driving it, the reasons for your choice, bar stool talk, and the rest.

Alas, for those business drivers fortunate enough to have a company car there is a drawback: company car tax. Although it has to be said that paying company car tax monthly is usually rather better than having to pay for the same car out of your pocket.

That said, getting the balance right between your company car and the tax you pay is crucial. But generally the less money the car costs and the fewer CO2 emissions from its tailpipe results in a lower company car tax bill.

The CO2 emissions are measured against a percentage benefit in kind scale; the percentage figure is then multiplied against the vehicle’s P11d cost to establish the benefit payable at either 20% or 40% depending on the rate of personal tax you pay.

Tax changes ahead

However, the amount you pay is likely to change significantly in the 2012/13 tax year, so it’s important to start considering the carbon cost of your company car and its impact on the tax you pay.

The base level of company car tax starts at 15% for petrol cars and 18% for diesel cars (ignoring the special low emission qualifying rate for the moment). For the 2010/11 tax year this is set at 130g/km of CO2; in 2011/12 it reduces by 5g/km to 125g/km of CO2; and in 2012/13 to 120g/km of CO2.

Let’s take the 105PS Audi A3 Sportback 1.2 TFSI S line model as an example. With CO2 emissions of 127g/km its company car tax bands go like this, with the benefit in kind shown after its percentage scale.

• 2010/11 15% L3015
• 2011/12 15% L3015
• 2012/13 16% L3216

So what’s the big deal? Actually, not much on this highly efficient car it has to be said at – but there is a marginal tax hike in the third year: L40 for a 20% tax payer; double that for a 40% tax payer.

Nevertheless, the big change affects those cars which have qualified for the special low emission scale charge of 10% for petrol cars and 13% for diesel cars – such company cars are known, rather ungainly, as QUALECs (qualifying low emissions cars). The low emission band applies to those cars with CO2 emissions not exceeding exactly 120g/km. From 2012/13 tax year the QUALECs dispensation will be abolished – and the low tax bills company car drivers have enjoyed by choosing such a low emission model will disappear, too.

So what happens to the scale charge?

While the lowest percentage scale charge remains at 10%, this will apply to cars with CO2 emissions of up to 99g/km. From there, the scale charge for emissions continues at 100g/km (11%) and increases by 1% in steps of 5g/km to the current maximum of 35%, as at present.

And this is where the real effect of the tax changes will be felt by company car drivers. Let’s take BMW’s exceptionally low carbon 320d EfficientDynamics saloon as our example.

With CO2 emissions of 109g/km its company car tax bands go like this, with the benefit in kind shown after its percentage scale.

• 2010/1113% L3535
• 2011/12 13% L3535
• 2012/13 15% L4079

In other words, a business car driver paying tax at 20% on the BMW will suddenly find themselves paying an additional L109 a year in tax; 40% tax payers L218 on top of the previous year’s tax bill.

It seems a little perverse that company car drivers who had made such CO2 efficient car choices should be penalised in this way – but by the same token HMRC has always said it would end this special qualifying discount in the 2012/13 tax year.

To balance the ending of one discount, HMRC has also introduced another: a 50% discount on company cars with emissions below 75g/km CO2. You won’t find any at the moment, but by 2012 expect the first plug-in hybrids to be available that will qualify for this 5% rate – available from the 2010 tax year for five years (diesels will pay 7.5%).

If you decide to really cut CO2 emissions by driving a zero emission car – often referred to as ZEV – then you can escape company car tax until 2015 in a special discount designed by HMRC to encourage the take up of electric cars.

Where to go for advice

If you want more information on the new company car tax bands, then download our company car tax sheet under the further information heading below. Otherwise you can use our own tax calculator at the bottom of our menu on the right.

More guidance will be available from BVRLA-approved car leasing brokers, along with fleet leasing companies such as Fleet Alliance (see commentary below) as well as from the business sales manager at your local car dealership.

Fleet Alliance comment on company car tax changes

Martin Brown, managing director of business car solutions provider, Fleet Alliance, has this to say:

The article makes company car drivers aware of their changing BIK liability which is hugely important. However, in my experience, the BIK is a small price to pay for a shiny new company car.

Overall, provided you are CO2 aware then the company car still offers excellent value for money and frees you from many hassles of car ownership. The car manufacturers are constantly driving down the emissions of their own cars – so some of the hard work is done for you.

Further information

To download the latest company car tax bands in a pdf document click on the following link: Company Car Tax Bands 2010 to 2013.

There’s additional commentary on the value of company cars in the Editor’s Blog Company car tax and car costs.