Company car rate hiked to raise £1.6bn

CHANCELLOR George Osborne unveiled a hike in company car tax rates yesterday in a move he claimed will raise an extra £1.6bn in revenues over the next five years.

The plan to clobber companies with fleet cars for more tax came just minutes after Prime Minister David Cameron had identified a booming car industry as key to the health of the UK economy, and hailed leaders of the industry.

Tax rates on company cars are to rise by a percentage point to a maximum of 35 per cent in 2014-15.

This will be followed by a two percentage point rise to a maximum of 37 per cent in 2015-16 and 2016-17.

The graduated rises will apply to cars emitting more than 75g/km of carbon dioxide (CO2).

Osborne said in his Budget speech: “To encourage fuel efficiency, we will extend the 100 per cent first-year capital allowance for fuel-efficient, low-emission business cars, reduce the CO2 threshold for the main capital allowance rates, and increase the percentage list price of company cars subject to tax.”

His statement followed a gushing tribute to the UK car industry by David Cameron in Prime Minister’s Question Time.

Cameron hailed Jaguar’s new tie up with Chinese car maker Chery (see p17) and the jobs that were being created in the industry.

But Matthew Hall, head of tax at accountants Wilkins Kennedy said: “These new measures are going to make many company cars prohibitively expensive to both companies and their employees.”

John Lewis, chief executive of the BVRLA, a trade body for leasing, rental and commercial vehicle companies said: “This is clearly a Budget for business and employment that is likely to stimulate growth for many of the fleet industry’s customers.

“However, the chancellor’s enthusiastic efforts to drive down emissions-based capital allowances for company cars could be a step too far, too soon.”

Meanwhile Lewis attacked the government’s confirmation that a five-year tax exemption for zero-carbon and ultra low-carbon emission vehicles like electric cars will come to an end in 2015.

He added: “This measure could kill the electric car market stone dead.”

Other lobby groups welcomed the detail in the long term plan from the government.

Chief executive of the Society of Motor Manufacturers and Traders Paul Everitt said: “It’s important to know ahead of time what’s coming.”