Discounts on company car taxation for hybrid and alternative fuel vehicles will be scrapped under new tax terms revealed as part of yesterday’s Budget.
The new regime will come into force April 6, 2011 and will see discounts on company car tax currently available for Euro 4-standard diesel cars registered before 1 January 2006, higher-emitting hybrid cars and alternative fuel company cars, such as those powered by bi-fuels, road fuel gas and bioethanol, being scrapped.
Up until now all company hybrids and alternative fuel vehicles have been taxed at 10 per cent of their value, however the reforms mean that all cars will be taxed according to CO2 emissions in a move to increase the incentive to select the greenest company cars. The changes will affect the most polluting hybrids such as the Lexus RX 400H and biofuel ready cars such as the Saab 9-5 Biopower. This will bring the taxation system more in line with reforms of the Vehicle Excise Duty (VED) tax bands, which are to take effect from 1 May 2009 as announced in the 2008 Pre-Budget report.
The 80,000 tax capped for the most expensive vehicles will also be lifted under tax reforms announced yesterday as part of the Chancellor’s Budget.
This will mean that company car drivers of the luxury vehicles will have to pay tax on the full value of their vehicle.
Additionally from April 2011, the 15 per cent starting point for the benefit-in-kind tax band system will drop 5g/km to sub-130g/km.
Company car tax will then increase by 1 per cent of the car’s list price (P11D), for every 5g/km of CO2 there after, to a maximum of 35 per cent of the cars list price.
Finally from 2012 the Government will remove the 10 per cent tax band for cars emitting 120g CO2 per km or lower.
Electric cars however will continue to be subject to the 9 per cent band, the lowest available.
British Vehicle Rental and Leasing Association (BVRLA) chief executive, John Lewis commented: “This is in line with what we expected in order to keep incentivising companies to use more fuel-efficient vehicles and manufacturers to make them. The two-year warning period means that the government has listened to our call to give businesses plenty of notice,” said John Lewis.
However the association believes that the taxation system against diesel vehicles is unfair as diesel cars make up many of the lowest CO2 emission vehicles available on the market: “While we recognise that the Government is finally considering abolishing the unfair diesel surcharge within the BIK regime, we are bitterly disappointed that it will probably wait until 2014 to do so. Seeing as it has already abandoned the surcharge within the VED system, it is clearly only being maintained as a valuable source of extra tax revenues,” Mr. Lewis said.
