Budget 2009: Car tax changes intended to encourage greener fleets

The government has announced changes to company car tax that are intended to encourage take-up of more fuel-efficient cars in company fleets.

The company car tax changes will take effect from 2011.

The CO2 threshold at which the 15% company car tax applies will be reduced by five grams of CO2 per kilometre.Therefore, from 2011, the 15% tax band will apply to cars that emit between 121g and 129g CO2/km.

The percentage of the car list price that is subject to tax will continue to increase by one percentage point for every 5g CO2/km increase in CO2 emissions. The maximum cap will be 35%.

The current tax bands for company cars will be revamped in 2012.

The 10% tax band for cars emitting 120g CO2/km or less will be removed and the system of company car tax bands will be extended so that they increase by one percentage point with every 5g CO2/km increase in emissions, from a starting point of 10%. The government intends to announce the details of specific rates and thresholds in future Budgets.

In addition, the £80,000 cap on car list prices used to calculate the taxable benefit on company cars will be abolished so that drivers of expensive cars will be subject to a fair level of tax.

The legislation relating to the cap and setting the rates of company car tax for 2011-2012 as well as subsequent years will be introduced in the Finance Bill 2009.