Summer Budget 2015: What it means for company car drivers

Road tax will undergo its biggest shake-up for many years in 2017 with major changes announced in the Summer Budget.

The new rules will have the greatest impact on fleet operators rather than company car drivers.

No changes were made to company car tax rates, so they will continue to increase over the next few years at the levels set out in the March 2015 Budget, which have followed a pattern to tighten almost every year over the last 13 years.

But from 2017, no petrol or diesel car will escape Vehicle Excise Duty. For the last few years, any car with CO2 emissions of 130g/km have had a first-year rate of zero, while cars with CO2 between 101 and 120g/km have only had to pay £20 or £30 in subsequent years.

Under the rules coming into force in April 2017, only zero-emission cars will be exempt from road tax, while very low emission cars (including plug-in hybrids, and small to medium sized hybrids) will pay a modest first year rate.

The standard rate of VED for all cars producing any amount of CO2 emissions will be £140 per year. But the Government has added an additional levy on vehicles that are priced at £40,000 or more.

It means expensive cars, regardless of emissions levels, will incur an additional £310 a year for the first five years - £1,550 in total.

This could result in company fleet policies seeking to place middle and senior managers in less expensive cars to avoid the extra £310-a-year tax, or review fleet budgets to accommodate them.

Cars such as F-Sport and Premier versions of the Lexus GS 300h, and large hybrid models in other premium manufacturer line-ups will become more expensive for fleets to run.

It also means that the latest generation of hydrogen fuel cell cars - none of which are expected to cost less than £40,000 initially - will be subject to the levy, despite only producing water vapour from the exhaust and no CO2. Some expensive battery electric cars, such as Teslas, will also cost more to operate for fleets.

Choosing an ultra-low emission company car will still help minimise your BIK tax liability, but the extra cost of VED for your employer is a matter they will have to consider for their fleet policies beyond next year.