Company car drivers will be paying millions of pounds more in Benefit-in-Kind tax following the chancellor’s Budget announcement.

Top level managers will be hit hardest, but even company drivers of cars such as a Ford Mondeo will be paying over 10% more in company car tax.

The Treasury has calculated that the changes will cost company drivers and their employers an extra £85 million a year when they come into force in April 2011.

Many company car drivers were dealt a double blow in last week’s Budget, when the Treasury confirmed the 3% BiK surcharge on diesel-powered company cars remain in place.

However, a Treasury spokesman told Fleet News that the Government is “considering abolishing the diesel surcharge”, although he could not give a timescale.

He also said that, as has happened previously, “it is likely” that early adopters of clean technology – in this Euro6 compliant diesel cars – will be given an incentive.

This means company drivers who switch to cleaner Euro6 diesel cars before their compulsory introduction in 2015 will face lower BiK tax bills than their counterparts who continue to drive more polluting diesel cars.

The BVRLA criticised the move.

“We are glad that the Government is considering abolishing the unfair diesel surcharge, but bitterly disappointed that it will probably wait until 2014 to do so – it is clearly only being maintained as a valuable source of extra tax revenues,” said the association’s chief executive, John Lewis.

A typical lower rate tax payer will see his company car tax bill rise by £104 a year, while the same driver paying at the higher rate of rate will see that rise to £208 a year.

However, drivers of low-emission cars – those under 115g/km – will avoid an increase.

While almost every company car diver will be affected, it is those driving the most expensive models that will be hit hardest.

In line with the ‘tax the rich’ approach taken by Alistair Darling, the Budget contains details of how directors and executives driving company cars costing over £80,000 will be hit with an increase in BiK of thousands of pounds each a year.

A director driving a Mercedes-Benz S-Class AMG priced at just over £100,000 will pay an extra 56% a year in company car tax.

According to Dan Rees, a tax expert from Deloitte, a director earning in excess of £150,000 a year will see his company car tax bill jump by £6,300 a year.

Such figures were confirmed by lease provider, Alphabet. “Some high earners in expensive cars could see their company car tax increase by more than £500 per month - they should consider alternatives to a fully expensed company car, such as an employee car ownership scheme,” said Alphabet director Mark Sinclair.

The chancellor said the changes are designed to encourage company car drivers into lower polluting cars, but some are not so convinced.

Company car tax expert Alastair Kendrick said: "This is a stealth tax that will increase revenue, but has been justified under the green banner."

The BVRLA’s head of legal services, Jay Parmar, added: “These figures are based on the premise that the company car fleet stays the same over the next few years.

"It is up to you if you want to stand still and let the Chancellor take your money, but most companies and drivers will treat these new bands as an incentive to reduce their tax bill.”

Mr Kendrick also warns that salary sacrifice schemes, which currently exploit the 10% tax band for sub-120g/km cars, may suffer as that band will be reduced.