Company car drivers face big rise in tax bill

HUNDREDS of thousands of motorists will be forced to pay more tax on their company cars under plans due to be announced in the Autumn Statement, The Sunday Telegraph understands. Philip Hammond is considering scrapping low tax rates for staff who take advantage of company car schemes and those driving ultra-low emission cars would be the hardest hit.

The change would force more than 300,000 taxpayers to stump up thousands of pounds more for their company vehicle, making the schemes less attractive.

Instead of the seven or 11 per cent tax charged on lowemission cars currently, staff would be forced to pay their marginal rate of 20, 40 or 45 per cent instead.

An employee paying 40 per cent on their earnings would be hit with a tax bill of more than £5,000 over a three-year company car contract if they drive the most efficient vehicle.

The Government is understood to be planning to remove low rates for company cars amid fears that employers are using the schemes to pay staff less at a major cost to the Treasury through lost tax revenue.

Sources at one of the biggest salary sacrifice companies in the UK have been warned by officials that the change is expected in this month’s Autumn Statement.

It follows hints in both the last Autumn Statement and the Budget in 2015 when former chancellor George Osborne suggested that schemes which give employees tax-free or low-tax benefits could be curbed.

A consultation on the schemes, which closed in October, states: “The Government has considered how to reduce the Exchequer cost of these arrangements and level the playing field between employers who offer these arrangements and those who don’t.”

Mary Glindon, the Labour MP for North Tyneside and a former member of the transport select committee, said: “It beggars belief that the Chancellor is proposing to punish company car drivers for doing the right thing. The tax regime around cars in the UK has been successful in promoting take-up of cleaner, low-emission cars.

“The Chancellor is now proposing to rip up this regime, remove environmental incentives and in doing so land hundreds of thousands of company car drivers with a tax increase. There are particularly worrying questions about the impact of these proposals on demand for new, cleaner cars.”

Ministers have been concerned about salary sacrifice schemes for some time amid fears that they cost the Treasury while they are being used to tempt staff to stay at a company without offering an increase in basic pay.