Hundreds of thousands of professionals who drive company cars will have to pay far more in duty after the Chancellor increased company car tax rates and charges on fuel.
The fineprint of the Budget showed that, from 2014, the Government will raise by one percentage point the proportion of the list price of company cars which is subject to tax. It will rise by a further two points in the next two years.
From next month, employees with company cars who receive free fuel from their employers but do not reimburse the company for fuel used on non-work journeys will also have to pay more in tax.
The Treasury estimated that 250,000 employees would be affected by the change. Only zero emissions cars will be free from the fuel tax.
From next month, a basic-rate taxpayer driving a Ford Focus will have to pay £100 a year more because of the change to the company car fuel benefit charge. A higher-rate taxpayer will pay £200 more. HM Revenue & Customs said that it did not expect the increase to have a “significant economic impact”.
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However, the Treasury stands to gain £5 million a year more in 2012-13, rising to £10 million in each of the next two years when the increase will be two points above retail price inflation.
From 2014, employees who drive company cars that are available for private use face a higher tax burden. The percentage of the list price subject to tax will rise by one point for cars emitting more than 75g of carbon dioxide per km, up to a maximum threshold of 35 per cent.
From 2015, a five-year exemption for zero-carbon vehicles and a lower rate of tax for ultra low emissions cars will also come to an end. A supplement for diesel cars will end in 2016.
The Treasury said that raising Company Car Tax would increase average income tax rates for company drivers. But the Budget document concluded: “Since those affected are predominantly higher-income households, the impact on consumption and labour supply is expected to be relatively small.”
A higher-rate taxpayer driving a petrol Ford Focus will pay £65 more tax in 2014, £130 more in 2015 and £165 more in 2016. The same taxpayer will be charged £70 more to drive a diesel model in 2014, £145 more in 2015 and £70 less in 2016. The Treasury predicted that the change would have no effect on businesses.