By Max Clarke
Senior executives who benefit from generous company car schemes and owner-directors who run their luxury cars through the company are to be hit with a new income tax charge after 6 April.
Under new rules coming in on 6 April, the P11D tax paid on company cars, such as Ferraris, Lamborghinis, Bentleys and top-end Mercedes and BMWs, will increase significantly as the £80,000 maximum list price is abolished. Under the current system, income tax and NICs have been restricted due to this cap, resulting in maximum income tax of £14,000 pa and NICs of £3,584.
The tax increase would mean that an executive who drives a Ferrari 612 with a list price of around £222,000 would pay income tax of almost £39,000 pa, and the employer would face a bill for Class 1A NICs of over £10,000 pa, giving a total tax bill in 2011-12 of almost £50,000. This is an increase of 182% compared to this year with the cap in place.
Drivers purchasing secondhand cars will need to be particularly wary because what could seem a bargain could turn into a tax headache. HMRC charges car benefits on the list price, the amount the vehicle would be purchased for if new.
David Heaton, Employer Consulting Partner at Baker Tilly says: “Removing the £80,000 maximum list price is an easy hit for the Government, as it affects a select group of wealthy drivers. The tax hike was described in 2009 by Alistair Darling , when he introduced the legislation, as ensuring drivers of expensive cars paid a ‘fair level of tax’, but the result is more likely to be the disappearance of the supercar from companies.
"The super-rich may not worry about the extra tax, but there is a real danger that some drivers of older company-owned supercars could be caught out: you can pick up a 2005 model Ferrari 612 Scaglietti for about £65,000, but as a company car the tax bill is based on its list price of £177,000: £39,500 of tax and NIC per year to drive a car worth £65,000 is not very attractive.”