New cars need careful tax planning following ‘Qualec’ rule change

Careful consideration needs be given to the next choice of company car by employees, as well as vehicles made available to staff by the company, because of major changes to the company car taxation system from April 6 affecting so-called ‘Qualec’ cars

Under the new rules, company car drivers who have already chosen low carbon emitting vehicles will be unfairly penalised, as they will see significant rises in their tax bills due to the new regulations, the fleet software experts say. 
 

The changes spring from a reduction in the 10% tax threshold for ‘Qualifying Low Emissions Cars’ (Qualec) from 120g/km in 2011 to 99g/km from April this year.
 

Previously, Qualec cars with CO2 emissions of 120g/km were taxed at a flat 10% tax rate, or 13% for diesels. Now they face a tax charge of 15% or 18% for diesels, which represents a significant increase for drivers who had previously thought they were selecting low carbon, low tax cars.
 

Also from this April, new CO2 bands come into effect and cars with CO2 emissions of 100g/km to 104g/km will be in a new 11% band, with new bands from 11-14% rising in 5% carbon increments – see chart below.
 

Percentage of P11D                              price 2011/12 g/km          2012/13 g/km
            10                                                               120                                   99
            11                                                                N/A                                 100
            12                                                                N/A                                 105
            13                                                                N/A                                 110
            14                                                                N/A                                 115
            15                                                               125                                 120
            16                                                               130                                 125
            17                                                               135                                 130
            18                                                               140                                 135
            19                                                               145                                 140
            20                                                               150                                 145
            21                                                               155                                 150
            22                                                               160                                 155
            23                                                               165                                 160
            24                                                               170                                 165
            25                                                               175                                 170
            26                                                               180                                 175
            27                                                               185                                 180
            28                                                               190                                 185
            29                                                               195                                 190
            30                                                               200                                 195
            31                                                               205                                 200
            32                                                               210                                 205
            33                                                               215                                 210
            34                                                               220                                 215
            35                                                               225                                 220

Some of the biggest losers will be low carbon emitting cars that currently qualify for the 10% rate. For example, a petrol car emitting 118g/km that is currently taxed at the 10% rate will see its tax liability jump by 4% to 14%.
 

By comparison, cars with relatively high emissions will see the smallest increases. For example, a petrol car emitting 160g/km of CO2 will see its tax rate rise only 1% from 22% now to 23% from April, while a car emitting 205g/km of CO2 will also see its rate rise from 31% to 32%.
 

The 3% diesel surcharge will continue to apply to all cars.
 

Careful fleet planning to select the most cost and carbon efficient models for the fleet should be essential in the light of the changes, says Mycompanyfleet, as most drivers will face tax rises.
 

For example, the driver of a petrol-driven company car with a P11D value of £20,000 and CO2 emissions of 118g/km will see his or her tax bill rise £160 a year from £400 currently to £560 in 2012/13 as a 20% taxpayer and by £320, from £800 to £1120, as a 40% taxpayer.
See chart below:

                                            2011/2012         2012/13
Tax band                                 10%                    14%
Scale charge                        2,000                   2,800
20% taxpayer                         400                       560
40% tax payer                        800                     1120

Also from April, there is an additional tax burden as the Class 1A National Insurance employers’ rate increases from 12.8% to 13.8%, increasing the NIC burden the employer has to pay for company car provision.

“The examples above show that carbon-efficient tax planning for company vehicles is going to be of key importance to avoid drivers and companies alike paying excessive tax increases,” said Jon Tandy, Business Development Manager at Mycompanyfleet, the automotive division of global HR software supplier, NorthgateArinso.
 

“It’s imperative that if fleets haven’t already planned for the tax changes in April, they do so now and make sure their drivers are aware of the new tax rules. They will have a significant effect on the benefit in kind position of all employees who receive a company car.
 

“One way of tackling the issue is to use the latest fleet software to help in tax planning and vehicle selection. Our car ordering module allows employees to see what tax band their car falls into under the new rules, helps identify any monthly upgrades or increases, as well as providing the full carbon emissions, benefit-in-in kind and P11D details necessary,” he said.

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