09 March 2011 04:55

Motoring

Execs to be hit by new luxury car tax

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 6th April.

Under new rules coming in on 6th 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.”

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