Company car drivers could face up to a 25% increase in their tax bill following changes to the benefit-in-kind (BIK) tax system in 2012 .
A driver choosing a car with CO2 emissions of 120g/km will enjoy being in the lowest 10% banding (13% for diesels) for the next two tax years (2010/11 and 2011/12) but from April 1, 2012, a new system comes into effect, bumping the car up by at least four BIK bandings.
As a result, drivers could be hit with a 25% increase in their company car tax bill on that date as the 120g/km rate moves up.
The anomaly is due to a reclassification by the government of the lower bands of the company car tax system for the 2012/13 tax year.
Currently, vehicles emitting 120g/km of CO2 or less qualify for the lowest tax band, but for 2012/13 the 120g/km level rises to 15% (18% for diesels).
For example, a 40% taxpayer choosing an Audi A4 2.0 TDIe SE saloon that emits 120g/km will see their tax bill rise by £500 - a 27% increase.
In contrast, the same driver choosing an A4 2.0 TDI SE saloon emitting 129g/km will see their tax bill rise by just £98, or 5%.
The same applies to a BMW 3 Series. The same driver in a 318d M Sport with emissions of 119g/km will see their tax bill rise by £447 - a 23% hike - but for a 320d M Sport with emissions of 125g/km the increase will be just £117 (5%).
The reclassification of the tax bandings is aimed at encouraging drivers into lower emission vehicles.
To qualify for the lowest BIK banding from April 1, 2012, a car must emit 99g/km or less of CO2.