The Budget: Red light for 'perk' vehicles: Company Cars

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The Independent Online
THE DEATH of the 'perk car' was being predicted last night following the announcement of radical changes to company car taxation that could add pounds 1,000 to the tax bills of senior executives.

Britain's 2 million company car drivers will face an 8 per cent rise in scale charges from 6 April. But from 1994/5 the system will be overhauled and the tax based not on engine size as at present but on 35 per cent of the manufacturer's list price plus any 'extras'. Inland Revenue officials said there would be no cut-off point.

The change could increase the tax bill of employees with high- performance cars by as much as 60 per cent and deal a particualrly savage blow to luxury car manufacturers such as Jaguar, Rolls- Royce, Mercedes and Porsche.

The 8 per cent hike in scale charges will increase the weekly bill of a basic-rate taxpayer driving a 1.4-2 litre car the average business mileage by pounds 1.06 to pounds 14.38. A company chairman with a top-of- the-range Jaguar or Mercedes used sparingly on business would see his tax rise by pounds 5.34 a week.

Under the new system of calculating the tax, employees driving more than 2,500 but less than 18,000 miles on business will get a one-third reduction on the 35 per cent tax charge and employees driving more than 18,000 business miles a two-thirds reduction.

All drivers of cars more than four years old will get a one-third reduction on the new scale charges.

Both the Society of Motor Manufacturers and Traders and the Retail Motor Industry Federation, representing Britain's 13,000 dealers, welcomed the change in taxation. There had been fears that the tax would be calculated according to a series of price bands rather than as a straight percentage of the list price.

But Brian Friedman of the benefit consultants, Stoy Hayward, said: 'I think this will start to kill off the perk car. The people who will do really badly are those driving very expensive cars and those who have already chosen 'tax- cheating' cars.'

According to Stoy Benefit Consulting, the annual tax liability of an employee driving a Granada 2.0 EFi LX Hatch will rise from pounds 1,108 now to pounds 1,788 in 1994/5. But for a driver of a Fiesta 1.1 three- door hatchback, the tax bill would fall from pounds 535 to pounds 379.

Colin Grant-Wilson, managing director of the vehicle leasing company, Lease Plan, said: 'The classic business driver such as the high-mileage sales representative using a Cavalier will see a reduction in his annual tax bill as will the district nurse. The burden of the new structure will fall more on the perk driver such as the Jaguar- driving chairman who will pay almost pounds 1,000 more each year'.

Mr Lamont announced his intention to alter the way the tax was calculated in last year's budget and in July the Inland Revenue produced a consultative paper.

This calculated that there would be 1.2 million gainers against 700,000 losers. The majority of those losing out would pay only 10 per cent more tax but in some cases tax bills could be up to 40 per cent higher.

The drawbacks of the present system are that it does little to encourage employees to drive smaller, more fuel-efficient cars and distorts the car market.

Chris Smith, Labour's environment spokesman, said: 'The Chancellor has changed the company car tax system for the better but retained an incentive to drive extra unnecessary business miles. This will undo whatever environmental good might have been achieved by the other measures.

----------------------------------------------------------------- BENEFIT SCALE CHARGES FOR CARS UNDER 4 YEARS OLD (pounds) ----------------------------------------------------------------- Business Mileage Pounds Original Engine 18,000 + 2,501- under Market Value Size (cc) 17,999 2,500 Under 19,250 0-1400 1,155 2,310 3,465 1400-2000 1,495 2,990 4,485 2001 + 2,400 4,800 7,200 19,251-29,000 all 3,105 6,210 9,315 29,000 + all 5,020 10,040 15,060 -----------------------------------------------------------------

(Chart omitted)