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Comment: Your escalating company car tax

Published 09 February 2015

Your company car tax bill shouldn’t have changed too much over the last few years, particularly if you’ve changed your car.

Annual increases of one percentage point might have led to a little more being spent on BIK tax each month, but when it came time to change your company car, technology advancing might have meant that your new one had far lower CO2 emissions than the one it replaced.

CO2 emissions, as we know, have been the basis on which company car tax has been calculated for more than 10 years.

Most bands are set so that a 5g/km increase in CO2 usually results in the car being taxed at a rate one per cent higher.

Since the recession in particular as companies have tried to reduce costs, the number of people entitled to a company car has fallen. Combined with unfortunate instances of organisations that had company car fleets going out of business, as well as new models offering significantly lower CO2 emissions than the cars they replace, there has probably been a fall in the amount of revenue generated for the Treasury by company car tax.

Over the next few years, company car tax bands will increase annually by two percentage points rather than one.

So a car that had been taxed at 15 per cent in 2013/14, rising to 16 per cent in 2014/15, will undergo an increase to 18 per cent from April 2015, ascending further to 20 per cent 12 months later.

In that example, the driver would see their annual company car tax liability increase by a third in four years.

So what can you do to avoid paying more tax? Nothing, unless your current company car is due to be replaced. If it is, then you need to choose a model several tax bands lower.

If you’re driving a diesel car (not a diesel hybrid), then you’ll be in line for a windfall from April 2016, as the current three per cent supplement on BIK tax for diesel will be eliminated.

So unless your car is due to be changed this year, expect a larger chunk of your income to be diverted to government coffers for the privilege of having a company car.