Income tax charge for senior executives’ company cars

Senior executives who benefit from company car schemes and owner-directors with luxury cars are to be hit with a new income tax charge from 6 April.

Under the new rules, the P11D tax paid on company cars, such as Ferraris, Lamborghinis, Bentleys and top-end Mercedes and BMWs, will increase significantly as the £80,000 maximum list price is abolished.

Under the current system, income tax and national insurance contributions (NICs) have been restricted due to this cap, resulting in maximum income tax of £14,000 per year and NICs of £3,584.

The tax increase would mean that an executive who drives a Ferrari 612 with a list price of around £222,000 would pay income tax of almost £39,000 per year, and the employer would face a bill for Class 1A NICs of over £10,000 per year, giving a total tax bill in 2011-12 of almost £50,000. This is an increase of 182% compared to this year with the cap in place.

Other company car tax changes on the horizon include:

• Cars with CO2 emissions of no more than 120g per km – qualifying low emissions cars or Qualecs – will be taxed at 10% of list price (3% for diesels).
• Cars with CO2 emissions of more than 125 g per km will be taxed at between 15% and 35%.
• Subject to the 35% maximum, a 3% surcharge will apply to all diesels.
• There will no longer be any special discounts for hybrid or bio-fuel cars, or for those that run on E85 ethanol.
• Plug-in electric cars (and vans) will attract no benefit-in-kind charge for the next four years.
• From April 2012 there will be a new tax rate of only 5% for cars with ultra-low CO2 emissions of 75g per km or less, with a new emissions scale starting at 10% (for 76–99g per km) and rising by 1% per 5g per km to 35%.

David Heaton, employer consulting partner at Baker Tilly, said: “Removing the £80,000 maximum list price is an easy hit for the government, as it affects a select group of wealthy drivers.

“The tax hike was described in 2009 by Alistair Darling, when he introduced the legislation, as ensuring drivers of expensive cars paid a ‘fair level of tax’, but the result is more likely to be the disappearance of the super-car from companies.

“The super-rich may not worry about the extra tax, but there is a real danger that some drivers of older company-owned super-cars could be caught out. You can pick up a 2005 model Ferrari 612 Scaglietti for about £65,000, but as a company car the tax bill is based on its list price of £177,000: £39,500 of tax and NIC per year to drive a car worth £65,000 is not very attractive.”

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