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From 6 April 2002 there will be no discounts for business mileage
driven.  The new system will be based on a percentage of the car’s list price
graduated according to its carbon dioxide (CO2) emissions.  It will
apply to most cars from 2002 (but see exceptions below), which means that most
drivers provided with new cars now will be taxed under both the old (i.e. current)
system and the new system.

The tax charge will be based on a percentage of the car’s list
price (as it is now), and the highest charge will be a 35% rate and the lowest
charge will be a 15% rate (as they are now).

Winners and losers

The drivers who are likely to be the biggest
losers are those who currently drive 18,000 business miles or more in a year.
They are currently paying a tax charge based on 15% of their car’s list price
and so they cannot be better off under the new regime and will have to drive
one of the very cleanest cars just to stay neutral.

The winners are likely to be the ‘perk’
car drivers, whose tax charges are currently based on 35% of the list price
of the car.  They cannot be worse off under the new system even if they drive
the most polluting vehicles.

The band of drivers covering between 2,500
and 18,000 business miles will contain both winners and losers under the new
system, depending on the level of emissions of their new cars.

Since CO2 is the major greenhouse
gas, the Government proposes to base the new regime on the number of grams of
CO2 emitted per kilometre, since this is a simple system.  By 2002,
it is expected that this information will be readily available for most company
cars.  A calculation will only need to be made once when the car is first used
as a company car, and this can then be used as the basis of the tax charge for
each year that the car is used.

Scale Charge Calculator

The current proposals for 2002/2003 are
that the 15% tax charge will only apply to cars emitting less than 165 grams
of CO2 per kilometre, increasing at a rate of 1% for each five grams
per kilometre up to a maximum of 35% for emissions in excess of 265 g/km.

Note that the given CO2 emissions
figure for a car should be rounded down to the nearest 5 grams per kilometre.
For example: (i) an emissions rating of 169 g/km will be charged at 15% in 2002/2003,
17% in 2003/2004 and 19% in 2004/2005 and (ii) an emissions rating of 209 g/km
will be charged at 23% in 2002/2003, 25% in 2003/2004 and 27% in 2004/2005.

 Scale charge calculator g/km of CO2 . 2002/2003 2003/2004 2004/2005 % of list price 165 155 145 15* 170 160 150 16* 175 165 155 17* 180 170 160 18* 185 175 165 19* 190 180 170 20* 195 185 175 21* 200 190 180 22* 205 195 185 23* 210 200 190 24* 215 205 195 25* 220 210 200 26* 225 215 205 27* 230 220 210 28* 235 225 215 29* 240 230 220 30* 245 235 225 31* 250 240 230 32* 255 245 235 33** 260 250 240 34*** 265 255 245 35****

Diesel Supplements

*              add 3 per cent if car runs
solely on diesel

**           add 2 per cent if car runs
solely on diesel

***         add 1 per cent if car runs
solely on diesel

****       maximum charge so no diesel
supplement

Example

Lyndsay has a company car.  She drives
12,000 business miles in each tax year.  Her car emits 202 grams of CO2
per kilometre driven, and has a list price of £23,450.  She is a 40% tax payer.

 . 2000/2001 2002/2003 List price (£) 23,450 23,450 % charge for business mileage between 2,500 and 17,999 25% – Percentage charge for 202 g/km – 22% Benefit in kind (£) 5,862 5,159 Tax payable at 40% (£) 2,345 2,064

Diesel cars

This system clearly benefits diesel cars
since they have generally lower CO2 emissions than petrol cars.
However, the particulates from diesel engines have contributed to an increase
in respiratory illnesses such as asthma.  The new rules deal with this anomaly
but aim to keep the new regime simple and straightforward, by adding a flat
rate increase of 3% to the figure used to calculate a car’s benefit in kind
charge.  For example, a diesel car that would give rise to a tax charge based
on 25% of its list price by reference to its CO2 emissions, will
actually give rise to a tax charge based on 28% of its list price.  Because
this is a flat increase of 3%, it has a disproportionate effect on the more
CO2 efficient diesels; for example it has a 20% effect on the 15%
rate but only a 10% effect on the 30% rate.  The 3% flat increase will not increase
the maximum tax rate beyond 35%.

Following evaluation of the new technologies
for “clean” diesel, the Government will waive the diesel supplement for these
very low emission diesel cars.  Further details about the criteria for exemption
will be issued in due course.  Consideration will also be given to the case
for granting a discount, expressed as a percentage of the car’s price, to these
cars.

Example

Jack has a diesel engine company car.
He drives 20,000 business miles in each tax year.  His car emits 206 grams of
CO2 per kilometre driven, and has a list price of £26,400.  He is
a 40% tax payer.

 . 2000/2001 2002/2003 List price (£) 26,400 26,400 % charge for business mileage over 18,000 15% – % charge for 206 g/km plus flat rate increase of 3% (23%+3%) – 26% Benefit in kind (£) 3,960 6,864 Tax payable at 40% (£) £1,584 £2,746

Alternative fuels and technologies

Cars that are propelled by alternative
fuels and vehicle technologies have the potential to offer significant environmental
benefits but tend to be more expensive than conventional vehicles.  Therefore,
following consultation, discounts expressed as a percentage of the car’s price
will be introduced to mitigate the impact of their higher price.

Exceptions

The new CO2 emissions system will not apply to vehicles
with no CO2 emissions rating (for example they have been imported
from outside the EC) or older vehicles for which the CO2 emissions
rating is not known.  The taxable benefit in such cases will be based on engine
size as follows:

 Engine Size (cc) No emissions figure Older vehicle 0 – 1,400 15% 15% 1,401 – 2,000 25% 22% 2,001+ 35% 32%

Vehicle Excise Duty (road fund licence)

Further reforms to Vehicle Excise Duty
(VED) have been announced with a reduction in VED rate for smaller and cleaner
vehicles.

The changes for all existing private and
light goods vehicles from 1 March 2001 are:

l
The VED rate will be increased by £5 to £160.

l
The VED rate for smaller cars will rise by £5 to £105.

l
The reduced VED rate for smaller cars will be extended from 1,100cc
to 1,200cc.  Owners of qualifying smaller cars who take out licences at the
standard rate up to 28 February 2001 will automatically receive a rebate of
up to £55 in March 2001.

The changes for all new cars registered
for the first time from 1 March 2001 are:

l
A four band system will be introduced based on emissions of carbon
dioxide (CO2).

l
Within each band there will also be a discount rate for cars using
cleaner fuels and technology and a higher rate for diesel cars.

 VED band CO2 emission level (g/km) Clean fuel (£) Petrol (£) Diesel (£) A Up to 150 90 100 110 B 151 – 165 110 120 130 C 166 – 185 130 140 150 D 186+ 150 155 160

Car fuel scale charge increases

The car fuel scale charges upon which individuals
are taxed if provided with free fuel have increased for 2000/2001 by approximately
41% to discourage employees from accepting free fuel.  The scale charges are
as follows:

 . 1999/2000 2000/2001 Engine size cc Petrol (£) Diesel (£) Petrol (£) Diesel (£) 0 – 1,400 1,210 1,540 1,700 2,170 1,401 – 2,000 1,540 1,540 2,170 2,170 2,001+ 2,270 2,270 3,200 3,200

The scale charges will be further increased
by 20% over and above the increases in pump prices in each year to 2002/2003.
Note that this is a significant increase this year, which is due to the rise
in the price of fuel.  Drivers who take free fuel should now consider their
positions very carefully.

To enable you to calculate your own position
Deloitte & Touche have developed www.cartax.co.uk.

David Rawlings, London Tax.