Company car tax: Budget 2012

  • Zero emission and low carbon cars to be taxed 
  • BIK diesel supplement to be removed by April 2016
  • BIK bands due to increase from April 2014

Company car drivers in low emissions cars face an increase in costs under new rules detailed in the Budget today.

A raft of changes to the way company car tax is charged were announced and although a decision to axe the 3% diesel supplement will be welcome for company car drivers other changes will mean higher costs. 

The removal of the 3% diesel supplement will now put fuel-efficient diesels on par with petrol models but further changes announced by Chancellor George Osborne to the company car tax rules will put a further £375million on the Government's coffers and hit the company car driver harder.

The 3% diesel supplement will end from April 2016 and for company car drivers who typically run a company car over three years this will start to affect car choice from April 2014.

There are also increases to the BIK bands. The BIK bands used to calculate the company car tax from a car’s P11d value will go up for cars emitting more than 75g/km of CO2 by 1% to a maximum of 35% in the 2014-15 tax year.

In tax years 2015-2016 and 2016-2017 the BIK bands will increase by 2%.

What’s more, the zero emission models and cars that emit less than 75g/km of CO2 will cease to be free from company car tax from April 2015, and will move into the 13% Benefit-in-Kind tax band for company cars. In 2016-2017 it will increase by a further two percentage points.

From April 2013, the CO2 emissions threshold for the main rate of capital allowances for business cars will reduce from 160g/km to 130g/km. This means that the company car choice is likely to be restricted to cars that emit 130g/km of CO2 or less.