14 December 2004

Britain’s company car drivers will stump up an extra £140m in tax in the two years after the next general election. The shock tax hike was buried in the detail of Gordon Brown’s pre-Budget statement, which set company car tax levels for 2006 and 2007, should Labour win the next general election in 2005.

It stems from the decision to abandon the three per cent tax advantage enjoyed by diesel cars that comply with Euro 4 emissions regulations. This will affect diesels registered after January 1 2006 and come into force from April 6 2006, netting the government an extra £40m. The following year the government will gain a further £100m. The driver of a standard BMW 320d ES will be charged around £750 in extra tax over three years.

Leasing company Lex Vehicle Leasing, the UK’s third largest, reckons that the changeover could cause a bulge of tens of thousands of registrations in late 2005.

Because Euro4-complaint diesels registered by December 31 2005 will continue to benefit from the three per cent discount, ‘we could imagine anyone due to replace their car in January, February or March 2006 pushing to bring the date forward,’ said Gerard Gornall, a tax consultant for Lex.

Around 30,000 company cars are renewed every month, suggesting that up to 100,000 company car transactions could be brought forward to the end of next year.

To do this company drivers will have to negotiate early terminations to their contracts and pay a penalty, which can be a 50 per cent charge for the outstanding rentals. On a popular company car like a BMW 3-series, which leases for around £400 per month, that could add up to an extra £600, although Gornall said that some cars with better depreciation than expected could be bought out early for less. ‘It all depends on the terms of the contract,’ he said.

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