Government proposals to impose a ‘pollution
tax’ on company car drivers will increase the red tape burden on
business and lead to increased operating costs, say company directors
Starting from next April, company cars
will be taxed on a sliding scale of between 15 per cent and 35 per
cent of their list price, based on the level of each car’s carbon
dioxide (CO2) emissions. Unlike the present system, there will be no
discount for high mileage drivers or for older cars.
Research carried out by the Institute of
Directors and accountancy firm HLB Kidsons reveals that companies are
now reviewing their company car policies, with one in five expecting
to reduce the size of their fleets - often with employees being
offered cash or other alternatives.
Stephanie Smye, chairman of the Eastern
Branch of the IoD, commented: “For many small and medium size
companies the new tax regime will mean extra red tape by imposing a
further administrative burden when it comes to calculating benefit in
“In addition, a company with 20 fleet
cars could be faced with an extra bill of £20,000, placing a penalty
on the people who rely on cars for their business operations.
“These proposals may curtail the use of
perk cars, reduce the size of company car fleets and encourage people
to consider cars with smaller engines. However, this research reveals
that 70 per cent of company cars are considered essential for business
use and not just perks.
“Companies that wish to leave their key
people in a breakeven situation or better will have to compensate high
mileage drivers either with extra pay or benefits. Another option will
be to allocate extra funding to maintain their current car fleet.”
Currently, 66 per cent of company cars
fall into the middle range between 1.4 and 2.0 litre engine capacity
with 29 per cent over 2.0 litre. On average 28 per cent are described
as perk cars and one in ten are used for fewer than 2,500 business
miles annually. Just over a third travel more than 18,000 business
miles in a year, so the abolition of the tax discount on business
mileage could have a significant impact on tax charges.
Changes in the car ‘benefit in kind’
tax will have a big impact, according to 56 per cent of respondents,
while 60 per cent said their policy on providing fuel for personal
uses would change or be reviewed.
Among companies expecting to make
changes, 62 per cent said they would consider changes to the
composition of their fleets over the next five years and 50 per cent
said they would consider offering cash alternatives to cars. The
proportion of companies that offer a company car is expected to fall
from 93 per cent to 79 per cent over the next three years and the
average number of employees with a company car, currently at 30 per
cent, is expected to fall to 22 per cent over the same period.
Correspondingly, the proportion of firms
offering employees a car allowance is expected to rise from 27 per
cent to 43 per cent. Alternative methods of providing compensation for
the loss of a company car include pensions and share options.
Half of the respondents said they have no
intention of introducing environmentally-friendly cars that run on
electricity or a combination of petrol and gas or electricity,
primarily because of the cost or impractability for high mileage
When asked for suggestions on cutting CO2
pollution, respondents suggested improving public transport,
developing new sources of fuel and restricting unnecessary trips such
as school runs.