Company car tax could increase

  • Drop in higher tax rate threshold increases costs
  • Company car drivers pushed in to 40% tax bracket
  • Benefit in Kind tax could double for those affected

Company car drivers could see their Benefit-In-Kind (BIK) tax liability could increase from April with the lowering of the higher tax rate threshold.

The government is set to drop threshold at which people begin to pay the higher 40% tax rate and this could have a big impact on company car drivers.

Anyone that earns £42,475 a year (including allowances) will be forced to pay the higher rate of tax, down from £43,875. The Institute of Fiscal Studies says the change will affect up to 750,000 people. Another 850,000 may be brought in to the higher bracket by 2014/15.

Anyone that falls in to the new threshold of higher tax and drives a company car could see their BIK bill increase, while some could see their costs rise by more than £1,000. At the same time the thresholds are set to increase for cars with CO2 emissions of 130g/km to 225g/km, with around 110,000 company car drivers could be affected according to HMRC.

There is already some confusion for company car drivers where the benefit in kind on their company car when added to their annual pay takes the total income in to the 40% tax bracket.

Many drivers will already be paying 20% BIK on an element of their company car with the rest taxed at 40%. But as the theshold comes down, their entire company car BIK will be charged at the 40% rate.

To find out how much extra you could be forced to pay because of the changes, go to Parkers company car tax calculator.