CO2 and Tax Issues
Budget Bulletin – April 2011
The following bulletin provides a summary of measures announced in the budget and a reminder of current tax rates.
For several years the way business cars have been taxed has rewarded both businesses and drivers who choose low emission vehicles; Budget 2011 continues this strategy.
Main announcements
The car benefit rates for 2013/14 were confirmed with a new lower threshold of 95g/km for the 10% rate introduced from that year with CO2 emmissions between 95g/km and 220gkm increased by 1% per year;
Fuel benefit charge increased to £18,800;
AMAPs to rise to 45p per mile for the first 10,000 for cars and vans;
Changes to the VAT fuel scale charge;
The freezing of the van benefit charge and van fuel benefit charge for 2011/12;
VED to rise in line with inflation, and increases to the 'showroom tax'; and
The introduction of a fuel stabiliser.
Car benefit charges for cars with an approved CO2 emissions figure
Note : The exact CO2 figure is rounded down to the nearest 5 grams per kilometre (g/km)Note
CO2 Emission Band |
BIK Tax Paid (%) 2011/12 |
BIK Tax Paid (%) 2012/13 |
BIK Tax Paid (%) 20013/14 |
0 |
0% |
0% |
0% |
1-75 |
5% |
5% |
5% |
76-94 |
10% |
10% |
10% |
95-99 |
10% |
10% |
11% |
100 |
10% |
11% |
12% |
101-105 |
10% |
12% |
13% |
106-110 |
10% |
13% |
14% |
111-115 |
10% |
14% |
15% |
116-120 |
10% |
15% |
16% |
121-125 |
15% |
16% |
17% |
126-130 |
16% |
17% |
18% |
131-135 |
17% |
18% |
19% |
136-140 |
18% |
19% |
20% |
141-145 |
19% |
20% |
21% |
146-150 |
20% |
21% |
22% |
151-155 |
21% |
22% |
23% |
156-160 |
22% |
23% |
24% |
161-165 |
23% |
24% |
25% |
166-170 |
24% |
25% |
26% |
171-175 |
25% |
26% |
27% |
176-180 |
26% |
27% |
28% |
181-185 |
27% |
28% |
29% |
186-190 |
28% |
29% |
30% |
191-195 |
29% |
30% |
31% |
196-200 |
30% |
31% |
32% |
201-205 |
31% |
32% |
33% |
206-210 |
32% |
33% |
34% |
211-215 |
33% |
34% |
35% |
216-220 |
34% |
35% |
35% |
225 or Over |
35% |
35% |
35% |
1: Diesels - The 3% diesel supplement to the percentage still applies but the percentage continues to be capped at 35%
2: Hybrids - Discounts available for early uptake euro 4-standard diesel cars, higher-emitting hybrid cars and alternative fuel company cars will now be abolished. Hybrid carsemitting120g CO2 per km or less will continue to fall within the 10 per cent band, the lowest for any type of company car.
3: 10% Tax Band - The 10 per cent band for cars emitting 120g CO2 per km will be removed in 2012 and instead the system of Company Car Tax bands will be extended so that they increase from 10 per cent by 1 percentage point with every 5g CO2 per km increase in emissions. Details of specific rates and thresholds for 2012 will be announced in future Budgets.
Reform of company van taxation
As expected, the Chancellor did announce reforms of the benefit-in-kind taxation of company vans, with drivers being hit by a significant increase.
From the 2007/08 tax year, the benefit-in-kind for private use of company vans will increase from £500 to £3,000. In addition, drivers receiving free private fuel will be liable for an additional £500 fuel scale charge (there is currently no additional charge for free fuel). Drivers will pay income tax on these benefit-in-kind charges at their applicable rate (basic rate or higher rate).
When introduced, these measures will mean a basic rate tax-paying company van driver, who has private use of the vehicle, will see a sixfold increase in his or her monthly tax bill. This translates to an increase from £9.16 per month to £55 per month.
However, with effect from 2005/06, employees who take their van home but incur no other private use will be exempted from paying any benefit-in-kind tax.
Although the Chancellor expects to see many company van drivers exempted from paying tax as a result of this clarification on home to office use of vans, we are assuming that the onus will be on the company and employee to prove that there is no other private use of the vehicle. Total Fleet is awaiting clarification from the Inland Revenue on how this exemption will be administered, but in practice, this might prove difficult to monitor and may present challenges to van operators.
Fuel scale charge for company car drivers
The benefit-in-kind taxation of employees receiving free fuel for private use, which was reformed last year to be based on CO2 emissions, was frozen at current rates.
The fuel benefit is calculated using the same sliding percentage scale and CO2 rating as the employee’s car, but with a nominal starting value for the calculation of £18,800.
Inland Revenue Approved Mileage Rates
These rates apply to employees who use their privately owned vehicles for business purposes and remained unchanged in the Chancellor’s statement. These are the maximum tax-free amounts at which the employer can reimburse the employee.
|
Rate per mile |
Cars and vans |
|
Annual business mileage up to 10,000 miles in the tax year* |
45p |
Each additional mile over 10,000 miles in the tax year |
25p |
Each passenger making the same business trip |
5p |
Motor cycles |
24p |
Bicycles |
20p |
* For NIC purposes the rate of 40p per mile can be paid up to 10,000 miles per earnings period
Employees are no longer able to claim actual business motoring or cycling costs instead of these allowances.
Fuel duty
Fuel duty will increase by 2 pence per litre on September 2009, and by 1pence per litre above inflation each year between 2010 and 2013.
September's Increase follows the 2p fuel duty increase that came into effect on April 1st 2009, and will bring fuel duty on a litre of fuel to 56.19 pence per litre. This will jump to closer to 70 pence per litre when VAT returns to 17.5% at the start of 2010.
The government intends that these changes will help to reduce polluting emissions by around 0.5% per year, by encouraging people to drive less and choose more fuel-efficient vehicles. They predict savings of 2 million tonnes of carbon dioxide per year by 2013-14.
Vehicle Excise Duty
From 1st may 2009, changes to Vehicle Excise Duty (VED) rates will take place with increases of up to £5 per band.
This will affect all vehicles, although those with lower CO2 emissions will see VED rates fall. Vehicles emitting less than 140g/km CO2 (Band F and below) will be no worse off, while those emitting less than 140g/km (Band E and below) will make savings in 2010/11
The government has also confirmed that the so-called *showroom tax* will still go ahead from April 2010. This means that higher emitting Band M cars will pay £950 VED in the first year and £435 thereafter.
With VED rates changing frequently over the coming years, It's important that you take time to understand how your current vehicle choice will affect the cost of running your fleet in the future.
Businesses should take note of the following table to see how these changes will affect each vehicle in their fleet over the coming years. This will not only help with budgeting but will help identify high emitting vehicles. You should begin to account for the £5 as from next month.
There are a number of ways that Total Fleet Services can help you understand how to do this. Our dedicated fleet management team will conduct a detailed fleet review to identify cost saving opportunities and can provide advice on setting a fleet policy that works for you. Contact them on 01543 431080 or email sales @lease-hire.co.uk
Use the chart below to find out how VED will change for your fleet.
VED Band |
CO2 emissions (g/km) |
Standard rate 2011-12* (£pa) |
A |
Up to and including 100 |
0 |
B |
101 to 110 |
20 |
C |
111 to 120 |
30 |
D |
121 to 130 |
95 |
E |
131 to 140 |
115 |
F |
141 to 150 |
130 |
G |
151 to 165 |
165 |
H |
166 to 175 |
190 |
I |
176 to 185 |
210 |
J |
186 to 200 |
245 |
K** |
201 to 225 |
260 |
L |
226 to 255 |
445 |
M |
Over 255 |
460 |
*Alternative fuel discout:2009-10,A-I £20,J-M £15,2010-11 onwards, £10 all cars
**Includes cars emitting over225g/km registered between 1 march 2001 and 23 March 2006
Other measures
As new technology develops, many more cars are expected to fall within the lower categories and so these changes will continue to encourage manufacturers to produce low emitting vehicles and drivers to choose them.
All vehicles will be affected by this change, so if existing vehicles in your fleet fall just beneath a tax band, please note that they may subsequently change to a higher tax band. You may also want to bear this in mind when selecting new vehicles, to avoid a mid-contract tax increase.
Bringing the company car tax thresholds down from April 2011 gives time for both fleet managers and company car drivers to plan their future policies and choices. Companies who take note now will see the benefit in two ways, by avoiding unnecessary tax increases, and the cost and environmental advantages of running a greener fleet.
