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ON THE MONEY: To benefit, jump off the tax band-wagon

Date: 04 March 2008

Rupert Saunders

Drivers wanting to avoid paying extra in benefit-in-kind tax had better move out of their current cars by April - and into ones emitting 120g/km of CO2 or less, writes Rupert Saunders

With this year's Budget looming on 12 March and all the fuss over Ken Livingstone's new-look C-charge, it would be easy for business car users to forget a far more relevant tax change that kicks in at the start of April.

That would be because you were first told about it two years ago.

It was in March 2006 that then Chancellor Gordon Brown announced the benefit-in-kind bands for the 2008/09 tax year. Not only did he increase BIK by 1%, he also introduced a new, lower band for so-called 'qualifying low emission' cars.

Hopefully, with two years' notice of the changes, both business car managers and drivers have had plenty of time to adapt and, if appropriate, change their fleet profiles. If not then the next couple of years could prove quite costly.

Let's start with the change that will affect most business car drivers: an extra 1% on the BIK taxation. What's happening is that the starting point for the 15% tax band, currently set at less than 140g/km, will drop by 5g/km from 6 April and all the other bands shift accordingly.

So, a Mondeo 2.0 Zetec (189g/km), which currently attracts a charge of 24% of P11D value, will now attract a charge of 25%. A Civic 1.4, currently in the lowest 15% band at 139g/km, will now jump up a band to 16%.

Back in 2006 it was hard to get excited about the new band, which introduces a 10% tax rate for cars emitting 120g/km or less (note the band includes cars at 120g/km).

“Pick the wrong cars and your business car costs will increase; pick the right ones and your company will see substantial savings”

Rupert Saunders

But now, despite the squeals of protest from the carmakers that

they are unable to meet lower emissions legislation, CO2 levels are dropping fast.

You can get a BMW 118d at 119g/km; the new Focus will have a couple of 1.6-litre diesel models below 120; and the Mini Cooper D is way down at 104g/km.

Of course, these are all diesel engines and will still attract the 3% surcharge, but, in all these cases the BIK rate will drop from 18% to 13% - which represents a substantial saving, especially for a 40% tax payer.

And if you are determined to drive a petrol, then the Fiat 500 1.2 probably gets my vote over the Citroen C1 or the Kia Picanto.

Don't forget, these changes don't just apply to the drivers' tax - because companies pay a Class 1A National Insurance Contributions related to the value of the benefit, the cost of providing business cars is going to change too.

Pick the wrong cars and your costs will rise; pick the right ones and you will see substantial savings. All-in-all, yet more good reasons to make sure your drivers are in the most economical cars you can get away with.