Brown says company cars will be taxed according to CO2 emissions

The changes bring company car taxation closer in line with the Government’s Climate Change Policy (see related story) and its attempts to integrate revenue-neutral environmental taxes with the conventional tax structure.

From 2002, tax on company cars emitting 165g/km of CO2 will be taxed at the lowest level, 15% of the car’s price. Tax will increase by one percent for every additional 5g/km. The maximum charge will be 35% of the car’s price.

The Institute of Directors (IoD) welcomes the change to a CO2-based tax system, but believes the system set out in the budget is too complicated. “We wonder why there are so many steps,” Geraint Day of IoD’s Policy Unit told edie. Day is referring to the fact that company car tax will change with every 5g/km increase in emissions, resulting in 20 different tax bands. “There will be increased administrative costs to keep an eye on this and it doesn’t appear to have any consistency with other car payments,” says Day. Overall, though, IoD supports a CO2-based tax system as long as it is revenue neutral as the Treasury promises.

The Confederation of British Industry (CBI) does not yet have a view on the new tax structure but accuses the Treasury of failing to consult on the changes. “It’s asking for comments by 31 July but the whole thing is going ahead in 2002 regardless,” a CBI spokesperson told edie.

The Treasury expects that fuel efficiency for new cars will improve substantially in the coming years and states that the “qualifying level of CO2 emissions will gradually be reduced over the first few years of the [company car taxation] reform”. In 2003-4, cars will have to emit no more than 155g/km of CO2 to qualify for 15% tax and in 2004-5 the level will lower further to 145g/km.

In order to ensure that firms don’t simply switch wholesale to diesel cars, diesel company cars will be subject to a 3 percent supplement. “Diesel cars emit less CO2 than petrol cars and so would be taxed on a lower percentage of the car’s price if the charge was based purely on CO2 emissions. This tax advantage is unwarranted, however, as diesel cars emit greater quantities than petrol cars of the two local air pollutants of most concern – particulates and nitrogen oxides [NOx],” explains the Treasury.