Sunday Times: How to navigate the great car tax grab

Ali Hussain

The chancellor's clampdown on motorists means many people who pay tax for using company cars will be worse off. By Ali Hussain

COMPANY car drivers are being urged to switch to greener models, or accept cash from their employer and lease their own car, following Alistair Darling's "green" budget.

While the chancellor's big hikes in vehicle excise duty grabbed the headlines, he also clobbered workers with company cars who are taxed on the benefit. They face paying hundreds of pounds a year more from 2010.

Meanwhile, family car drivers could find their road tax, or vehicle excise duty (VED), more than doubles in the next two years.

Nine in 10 cars will be affected by higher rates under the new tax regime, according to analysis by the Taxpayers Alliance (TPA).

The Vauxhall Astra MY2007 2.0i and the SAAB 9-3 MY2008, for example, are classed in Band F for the 2008-9 tax year and pay Pounds 210 in tax. By 2010 11, however, the rate will be Pounds 430 a year - an increase of more than 100%.

Here we answer your questions on how road tax and company car tax will be calculated.

COMPANY CARS

How will company

car tax change?

The tax is determined using the list price of the car multiplied by a percentage based on how polluting it is. The current range is between 15% for cars emitting 140g or less CO2 per kilometre and 35% for cars with a CO2 rating above 240g/km.

A company car driver with a Citroen C3 Pluriel Open costing Pounds 14,000 and producing 135g/km of CO2, will have a taxable benefit of Pounds 2,100. For a higher-rate taxpayer, this would mean a tax bill of Pounds 840.

From 2010, the 15% rate will apply to cars with 130g/km of CO2, down from 140g. Cars producing more than this will pay 1% more for each 5g/km up to 230g/km. For the Citroen driver above, this will mean an annual tax increase of Pounds 56.

What about fuel tax?

The increased rates also apply to fuel benefits, where employers provide free fuel and workers pay tax on the benefit. Fuel charges are determined using a fixed price multiplied by the same percentage as with the car's CO2 levels. This fixed rate will go up in April from Pounds 14,400 to Pounds 16,900.

For the Citroen, the tax on the fuel benefit will increase by Pounds 218 in April. Once you factor in the higher company car tax, the total increase in tax for a higher-rate taxpayer will be Pounds 274 by 2010.

Someone driving a slightly more polluting car, such as the Toyota Avensis saloon diesel costing Pounds 20,400 and with a 146g/km of CO2 output, currently pays Pounds 1,550 as a higher-rate taxpayer. This will go up to Pounds 1,714 by the 2010 tax year - an increase of Pounds 164.

The fuel benefit for the Toyota will increase from Pounds 1,094 today to Pounds 1,420 by 2010-11, up Pounds 326 - a total of Pounds 490.

Not all company car drivers go for the free petrol because of the high tax costs. You can work out how many miles you need to drive to make it worthwhile by multiplying the fuel tax you would pay by the miles per gallon of your vehicle and then dividing this by the price of petrol per gallon.

With the Toyota Avensis, you would need to drive about 12,000 miles a year to benefit from paying fuel tax.

Can I get a discount?

Diesel car drivers have to add an extra 3% when calculating their car and fuel tax. Hybrid cars such as the Toyota Prius, however, enjoy a 3% discount on the minimum 15% rate. Cars using alternative, greener fuels, such as LPG and biofuels, also get a 2% discount.

From April, there will be new lower bands. Electric cars such as the G-Wizz will benefit from a special flat 9% rate.

A new 10% rate will also be introduced in April for cars emitting less than 120g, which will benefit drivers of cars such as the one-litre Peugeot 107.

If we take its list price of Pounds 7,600, a higher-rate taxpayer would have to pay Pounds 304 rather than the Pounds 456 they will pay today.

Should I go for cash?

Most firms offering a company car will also offer a cash alternative, though this is not necessarily a cheaper option. A general rule of thumb is that the more fuel-efficient the car, the cheaper it will be to opt for the vehicle.

Analysis by Price Waterhouse Coopers shows a firm could offer cash of Pounds 4,768 instead of a leasing a Toyota Prius for three years from the 2008-9 tax year. This would amount to a net allowance of Pounds 2,813 and a further Pounds 660 from not paying company car tax - a total benefit of Pounds 3,473.

However, to lease the car yourself it would cost Pounds 5,628 if you include maintenance and insurance, leaving a Pounds 2,155 shortfall.

YOUR OWN CAR

How will road tax work?

The 2008-9 tax system divides cars into seven categories ranging from band A to G based on how polluting the vehicle is. The most polluting cars pay up to Pounds 400 a year while the least polluting vehicles pay nothing.

However, by the 2009-10 tax year, cars will be divided into 13 categories with a new top band to cover vehicles with more than 255g/km of CO2 rather than the current top tier of 226g/km. The top tier cars will pay Pounds 440 a year next year and Pounds 455 by 2010-11.

The new tax regime will also see the introduction of a "showroom" tax for new cars which will range from Pounds 115 to Pounds 950 for the most polluting vehicles such as Jaguars and Range Rovers.

Those in the next band down will pay Pounds 750. This includes family cars such as Vauxhall Vectras, Mercedes M and E class estates, and Mitsubishi Shoguns.

What cars can I buy

to beat the system?

There are only two cars on the market which fall into the lowest category and so pay no VED. These are the Ibiza 1.4 TDI 80PS Ecomotion and the Volkswagen 1.4 TDI.

There are still some large family cars which are subject to lower tax. The Skoda Fabia Estate for example, which costs about Pounds 13,000, is currently in the second lowest band with a Pounds 35 VED rate. In the 2009-10 tax year, the rate will go down to Pounds 30. By 2010-11 you would pay no tax for the first year if you bought it new and then pay Pounds 35 a year thereafter.

Another surprising low carbon emitter is the BMW 3 Series diesel saloon, which has a rate of 123g/km. It is currently classified as a band C car with an annual charge of just Pounds 145.

By the 2009 tax year however, it will have a charge of only Pounds 90 and no showroom tax in the first year.

What about second-hand

cars?

The new tax rates only affect cars made after 2001, raising fears that the value of second hand cars made after that date will decrease.

Pre-2001 cars will pay a flat Pounds 200 fee rising with inflation. It means you can own a high polluting car that is eight years old and pay less than half the tax of a new top-band car.

Analysts Eurotaxglass said the value of post-2001 used cars will fall by an additional 8% this year.

Matthew Elliott, chief executive of the Taxpayers Alliance said: "There is a serious danger that this will push people into using old cars that are even less efficient than 2008 models. The Treasury simply hasn't thought the measure through, and it could have really counter-productive consequences in terms of CO2 emissions."

ROAD TAX UP Pounds 70, BUT STILL BETTER OFF

MIKE Taylor, 33, from Sleaford, Lincolnshire, is a manager at a waste firm.

He has a Nissan Qashqai 1.5L diesel with a CO2 rating of 139g/km. The list price is Pounds 17,400. As a higher rate taxpayer, he pays Pounds 1,044 tax for the company car.

The tax goes up Pounds 70 in 2008-09 and Pounds 139 in 2010.

The increase in car tax will be offset by a reduction in his tax and national insurance contributions.

These will go down by Pounds 292 in April. A Pounds 497 increase in Nics will be offset by a Pounds 789 fall in his income tax.

He will be Pounds 222 better off next month.

THE COMPANY CAR TAX CHANGES

Car Tax 07-08 08-09 10-11 Difference Extra tax on fuel3

Peugeot 107 Pounds 456 Pounds 304 Pounds 304 -Pounds 152 -Pounds 188

Toyota Prius Hybrid Pounds 7922 Pounds 660 Pounds 660 -Pounds 132 -Pounds 20

Citroen C3 Pluriel Open Pounds 840 Pounds 840 Pounds 896 +Pounds 56 +Pounds 218

Toyota Avensis saloon1 Pounds 1,550 Pounds 1,632 Pounds 1,714 +Pounds 164 +Pounds 326

Honda Accord Tourer1 Pounds 2,801 Pounds 2,886 Pounds 2,971 +Pounds 170 +Pounds 345

Audi A6 diesel TDi SE1 Pounds 2,068 Pounds 2,162 Pounds 2,256 +Pounds 188 +Pounds 355

Range Rover 4.2l V8 Pounds 10,080 Pounds 10,080 Pounds 10,080 no change +Pounds 350

1 Additional 3% diesel charge added to fuel tax percentage. 2 Includes a 3% discount for hybrid cars. 3 Tax year

2010/11 Source: Deloitte

HOW MUCH MORE DUTY WILL I PAY?

Tax band1 Car Tax 2008 Tax 2010 Showroom tax2

A VW Polo 1.4TDI Pounds 0 Pounds 0 Pounds 0

B Peugeot 107 1 Pounds 35 Pounds 20 Pounds 0

C Ford New Focus 1.6 TDCi Pounds 120 Pounds 35 Pounds 0

D Toyota Yaris 1.0 VVT Pounds 120 Pounds 95 Pounds 0

E Renault Clio 1.2 16v 75 Pounds 120 Pounds 115 Pounds 115

F Ford Ka 1.3 Duratec Pounds 120 Pounds 125 Pounds 125

G Vauxhall Astra 1.6i Pounds 145 Pounds 155 Pounds 155

H Skoda Octavia Hatchback Pounds 170 Pounds 180 Pounds 250

I Citroen C3 1.6i 16v Pounds 170 Pounds 210 Pounds 300

J Mini Cooper S Convert Pounds 210 Pounds 270 Pounds 425

K Honda Accord Saloon 2.4 Pounds 210 Pounds 310 Pounds 550

L Renault Espace 2.0 Pounds 400 Pounds 430 Pounds 750

M Porsche Cayenne S Pounds 400 Pounds 455 Pounds 950

1 Based on CO2 levels. 2 Only for new cars.

Source:Vehicle Certification Agency

Comments

[Low Co2 Car Man]

The Seat Ecomotive and the Polo Blue Motion may be the only two cars to get under the magic 100g/km, but Volkswagen have now rolled out a good few models in their Bluemotion range and BMW have since launched the 118d EfficientDynamics and that has figures of 119g/km. Working in the new car business we have certainly seen a change in the consumers behaviour and the manufacturers will eventually have to take notice and produce far more efficient cars.

[Paul Biggs]

Pooh-motion! Diesel means less CO2 ( a harmless gas) and about 4 times as much real pollutants such as NoX and HC. Also, 'official test' g/Km figures don't reflect the actaul real world emissions, which are often around 20% (or more) higher.