Have you noticed a large increase in the car benefit in your notice of coding?

If you are an employee or a director you typically will have received a notice of coding for the 2015/16 tax year about three months ago. If you haven’t done so already, it is well worthwhile comparing this to the notice of coding for 2014/15. Because if you have a company car and you haven’t5 recently changed your car, you will probably see a larger than normal increase in the estimated company car benefit.

Most cars are taxed by reference to bands of CO₂ emissions. The percentage applied to each band has typically gone up by 1% each year with an overriding maximum charge of 35% of the list price of the car. From 6 April 2015 the perentage applied by each band goes up by 2% and the maximum charge is increased to 37%. So a petrol car with an original list price of £30,000 and CO₂ emissions of 135 will see an increase in the taxable benefit from £6,000 (22%). These increases may discourage businesses from retaining the same car. If the car was purchased by the employer, say three years earlier, a decision to replace the car with a new car needs to take account of not just the cost of the new car but also the fact that many cars are more efficient and thus have lower CO₂ emissions than a model manufactured three years earlier.

What does the future hold? It won’t get any better. From 6 April 20169 there will be a further 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%. So if the same car is still owned in 2019/20, the car benefit is £9,300 (31%) even though the car will be nine years old.

There is a slight bit of good news on the horizon. If the car is diesel e have had a 3% supplement to the percentages (subject to the overriding maxima of 37% or 35%). The supplement will be removed from 6 April 2016 for all diesel cars.

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