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Businesses face company car tax rises

Small businesses that run their business cars through the company face higher company car tax bills.

The changes to company car tax were in the Budget small print.

The benefit-in-kind on company car tax will change from April 6, 2011.

The basic threshold for company car tax

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30 November 1999

Small businesses that run their business cars through the company face higher company car tax bills.

The changes to company car tax were in the Budget small print.

The benefit-in-kind on company car tax will change from April 6, 2011.

The basic threshold for company car tax – 15% – will be reduced by 5g/km to 125g/km.

For the current 2009/10 tax year, the 15% band is set at 135g/km, reducing to 130g/km in 2010/11.

From 2011/12, the percentage of a car’s list price subject to tax will continue to increase by 1 percentage point. This goes up with every 5g/km increase in CO2 emissions, up to a maximum of 35%. The range will be 125g/km (15%) to 225g/km and above (35%). Diesel cars will be subject to a 3% supplement.

For an example of how the stepped increases in company car tax work, let’s take a 2010 model year Audi A4 2.0 TDI SE 143PS. The A4 has emissions of 139g/km. This puts it into the 18% tax banding for 2009/10. In subsequent years, the following increases will occur:

Audi A4 2.0 TDI SE 143PS

    • company car tax band 2010/11: 19%
    • company car tax band 2011/12: 20%

 

The 3% discount for hybrid cars has also been abolished from 2011/12. This affects all hybrid cars above 120g/km (below that figure cars qualify in the special low emission 10% band). This is the effect on the hybrid Lexus 4×4:

Lexus RX 400H SE

    • company car tax band 2010/11: 24%
    • company car tax band 2011/12: 28%

 

Discounts for alternative fuel cars – such as LPG – will also be abolished from the 2011/12 tax year. And those Euro IV diesels first registered before 1 January 2006 that received a 3% diesel discount will also see their discount abolished.

The £80,000 cap on the list price of company cars will be abolished. The full list price of all company cars will be used to calculate the level of benefit that is taxable under the benefit-in-kind tax rules.

In a further commitment to pushing business car drivers into lower emission cars, the government will remove the 10% band for cars emitting 120g/km CO2 per km in 2012. Instead the company car tax bands will start at 10% and increase by 1 percentage point with every 5g/km rise in CO2. These details will be announced in future Budgets.

The government has left the tax on free fuel alone; and there has been no increase in the rate for using private cars on business.

Known as the Approved Mileage Allowance Payment (AMAPs), the 40p per mile tax-free claim for every business mile up to 10,000 miles has remained unchanged since 2002. By leaving this figure unchanged, the government is effectively pushing business users, running their cars on Personal Contract Hire (PCH) or Personal Contract Purchase (PCP) schemes, into more fuel efficient cars by proxy.

New sub-125g/km threshold for 15% tax band in 2011

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Ralph Morton

Ralph Morton

Ralph Morton is an award-winning journalist and the founder of Business Car Manager (now renamed Business Motoring). Ralph writes extensively about the car and van leasing industry as well as wider fleet and company car issues. A former editor of What Car?, Ralph is a vastly experienced writer and editor and has been writing about the automotive sector for over 35 years.

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