Change of gear for car perk: New system could put thousands on revenue bills

SENIOR executives are facing an agonising choice between giving up their top-of-the-range company cars or seeing their pay fall by thousands of pounds when the new taxation system takes effect next year.

Other big losers will be drivers of 'tax cheater' cars in the pounds 15,000- pounds 19,000 bracket who at present pay the same tax as employees issued with cars half that price, but will now be hit with increases of up to 60 per cent in their bills.

The car industry was split yesterday on whether the tax overhaul would trigger the beginning of the end for the company car or whether it would simply force companies to downgrade their fleets by purchasing smaller, cheaper and more fuel-efficient cars.

Under the present system, tax is levied on the 'benefit in kind' value of the company car according to engine size on vehicles costing up to pounds 19,250. But from 6 April 1994 this will be replaced with a tax system based solely on price.

At present it is impossible to pay more than pounds 3,720 tax a year, whatever the salary, whatever the car and whatever the price. But the absence of a price cap under the new system means there is no limit on liability.

The company chairman driving a Rolls-Royce Corniche Convertible, price pounds 164,347, could face an annual tax bill of pounds 23,000 - enough to buy his wife a new Saab convertible each year or a Skoda 1.3 Forum for each of his five children.

Even executives driving the Mercedes 500 SEL, list price pounds 63,800, will see their tax bills increase from pounds 3,720 to pounds 5,984 supposing they pay tax at 40 per cent and drive between 2,500 and 18,000 business miles a year.

The tax charge for a driver of a BMW 750, costing pounds 53,250, would rise by nearly pounds 1,300 to pounds 4,995.

But massive tax rises also await middle managers driving typical executive cars such as a Rover 800 or Ford Granada. The tax charge on a Granada 2.0 litre EFi LX Hatch will rise by pounds 680.

A Ford spokesman said: 'We don't think that it will reduce the proportion of new cars bought by companies, but we do think people will become much more conscious of getting value for money.'

Lex Vehicle Leasing said company car drivers would probably opt for cheaper, more highly specified cars.