Rich take extra hit on company cars

DIRECTORS who had planned to choose a new top-of-the-range Mercedes, Porsche or Bentley as their company car may want to think again after the budget.

The fine print of Alistair Darling’s proposals contained a change to company-car tax rules that will mean those paying more than £80,000 for their vehicles will face extra duty.

Up until now the taxation schedule for company cars stopped at that level. Executives choosing more expensive vehicles paid the 35% tax rate (company cars are a benefit-in-kind and taxed accordingly) only on the first £80,000 of the purchase price.

From April 2011, the £80,000 limit will be abolished, and tax charged on the whole purchase price.

The move left some luxury-car makers fuming, in particular Bentley, which is owned by Volkswagen but has its factory in Crewe.

Stuart McCullough, sales and marketing director, said: “The government has talked about the importance of high-skill manufacturing to the postrecession UK economy. Changes to company-car tax, capital allowances and fuel duty will hit higher-value vehicles worst of all and two-thirds of these cars are British in name and manufacture.

“It is frustrating that we asked the government for support but the Treasury has instead made it even tougher. We would urge them to reconsider some of these measures, especially the changes to company-car-tax upper limits.”

A spokesman for Aston Martin said it had noted the changes, but said it did not think it would make a large difference to buyers of its cars.

At Jaguar Land Rover, the other large British luxury maker, most vehicles are sold for less than £80,000.

Darling made other changes to the company-car taxation regime that should push buyers into choosing more environmentally friendly vehicles – or raise more revenue if their buying habits do not change.

The switch comes in the thresholds at which cars qualify for lower rates of tax because of their eco credentials.

At the moment the tax rate goes up with the car emissions, with 22 ascending bands based on the amounts of carbon dioxide emitted per kilometre travelled. The lowest rate of 10% is on cars that emit only 120g of carbon dioxide per kilometre. This band includes small vehicles like the Citroen C1 and Ford Fiesta.

From April 2011 all the bands will shift down by 5g. To qualify for the lowest rate, a car will have to emit 115g of carbon dioxide per kilometre or less.

Click