Do you have the facts surrounding the changes in company car tax?

Life will never be dull for those who have a choice to make regarding company cars and vans. No sooner have we all become used to the present benefit-in-kind system , than the Chancellor and Treasury set about changing everything.

Drivers that normally keep their cars for more than two years - perhaps the customary three years - should be aware that decisions made today concerning which makes and models of car to buy, will directly affect the amount of tax drivers will pay when the new tax system starts in less than six months time.

Despite the importance of these changes an alarming number of people are still unaware of the benefit in kind changes, according to a snapshot survey conducted by HSBC. Forty five per cent of people are still not fully aware of the implications of the new emissions based company car tax on their business?

Essentially, the tax position changes from being based on one of three bands, where the greater the business mileage someone drives the greater the discount, to one based on a sliding scale of CO2 emissions, where tailpipe emissions are the crucial factor - and not the mileage. The consequences can be far reaching. As we'll see.

Let's take a Ford Mondeo driver in a car worth £16,000. Under current rules, this is how the driver would be taxed, according to business mileage:

Business miles	Benefit in kind*	Tax per month
	scale charge	40%	22%
Less than 2,500	£5,600	£187	£103
2,500-17,999	£4,000	£133	£73
18,000 +	£2,400	£80	£44

As you can see, the greater amount of business miles covered, the less tax there is to pay.

However, the government wants to discourage excessive mileage and promote fuel-efficient vehicles. That's why cars will be taxed on their CO2 emissions. The restrictions become progressively tighter over the first three years of the new tax. Hence our Mondeo example, with a CO2 rating of 192g/km, will be taxed at 20% of its list price in 2002.

CO2 rating (% list price)	Benefit in kind*	Tax per month
	scale charge	40%	22%
192g/km (20%)	£3,200	£107	£59

For two bands of drivers under the current tax scheme - less than 2,500 miles and 2,500-17,999 - the new regulations work in their favour. The story is dramatically different for the high mileage driver, who could suddenly be faced with paying almost £30 a month more in tax.

This simple example highlights the impact on company car drivers - and, of course, for employers in terms of human resource issues - if the implications of the new taxation system aren't fully considered now.

To help understand the situation more thoroughly, HSBC Vehicle Finance has produced a factsheet on the new system.

The Factsheet: Tax and the business Car is available by calling HSBC on 08456 09 06 08

 

For more information, contact :
Sanjay Mistry/Erica Higgins on (020 7260 8214/0121 455 3179).

HSBC Vehicle Finance (UK) Ltd
54 Hagley Road
Birmingham
B16 8PE

www.vehiclefinance.hsbc.co.uk

 

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