Company car tax: Fleet operators and drivers need to act now ahead of April tax changes

Simon Staplehurst, commercial research manager at Sewells, looks at the changes due to company car tax in April.

Since April 2002 company car tax has been based on a car’s list price for tax purposes and CO₂ emissions figure. However, now with only less than a month to go, fleet operators need to take a close look at forthcoming CO₂ bandings due to change in April to ensure they are opting for the most cost effective company cars.

Fleet managers and company car drivers are savvy-choosers when it comes to selecting their vehicles, with reduced costs in the forefront of their mind, from fuel economy to future values, and with an eye on lower CO₂ emitting vehicles to secure a lower BIK band, but they’ll need to be aware of the adjustments which come into force on April 1^st.

After March 31, capital allowances, the tax writing-down payment against the cost of buying cars, will change. This could have serious cost implications for your fleet if you aren’t privy to the change. Additionally, from a recent Sewells User Chooser survey, 40% of respondents said cost of ownership was of high importance when choosing their next company car - now is their last chance to act if they want to reap the financial benefits. 

Currently, cars emitting less than 95g/km CO₂ benefit from a 100% annual tax write down in the first year, but this reduces to vehicles in the sub-75g/km category from April 2015. From then, cars with CO₂ emissions above 76 g/km and less than 130 g/km will attract 18% writing down allowances.

Company car drivers will also need to keep an even closer eye on emission levels as the BIK bracket changes will see all vehicles attract higher employee contributions. For example, the diesel and petrol BIK rates for 2014/15 will increase by two percentage points, incurring an increased tax payment as the government imposes stricter emissions targets. This affects both employees’ BIK payments and the amount of Class 1A National Insurance paid annually by employers.

Companies looking to take advantage of the 100% tax write-down need to ensure that new company cars have emissions below 95 g/km and are registered and invoiced before time runs out at the end of March. The 100% writing down allowance means the total invoice value of the car can be offset against corporation tax. After March, the true cost of purchasing some company cars will increase significantly as only non-hybrid and electric cars will sit below the new 75g/km benchmark.