Don’t let CO2 tax cook your finances

What does a few grams of CO2 look or feel like? It’s a question that’s not likely to tax the minds of many car drivers, who are more likely to have heard how CO2 is helping cook the planet, but maybe it just should.

The warning comes from Neil Cleghorn, business sales manager at Freeborn Group in Southampton, who points out that even for family car drivers making the leap from a 120 g/km CO2 car to a 121 g/km (Band C to D) will cost £85 a year. Lift that to a switch from Band F to G and it becomes £190 a year.

“Until now, that’s all people have really thought about when considering CO2 emissions and the financial cost to them,” says Neil.

“But come April and the change in the way Benefit in Kind tax is levied on company car users and some self employed people, the effect of a gram of CO2 could be far more financially serious.

“The worst case scenario is that choosing the wrong car (in this case an ordinary diesel emitting 145 g /km CO2 with a list price of £17,495) might cost £1,330 a year in personal tax payments for a person on 40 per cent Income Tax.

“But multiply that by the three years that most company car users keep their cars and it becomes a hugely significant £3,990. So that’s what even a small amount of CO2 really feels like. When it’s put like that, it should at least make people stop to think. And imagine the potential if you chose something really exotic where the tax has telephone number proportions.

“After the new tax year starts in April, companies and their car users will have to give more thought to the cars they choose,” explains Neil. “They will have to bear in mind what the net result will be on their P11D costs each year.

“There will be times when the thought of driving a car that’s more exciting than the average will make any financial penalty seem insignificant – and if you really love your motoring or don’t have to worry about costs that’s fine.

“But the majority of people will be better off if they keep below the 120 g/km CO2 level, and that doesn’t mean enduring a miserable existence in a frugal and frustrating small car.”

There are some frugal yet exciting and spacious cars within the tax band says Neil, who specialises in Citroen and Skoda models but can supply any make of car among the thousands of vehicles he places into company fleets each year.

For instance, a Citroen C4 1.6 HDI VTR+ five door hatchback with the racey EGS automated manual gearbox emits 120 g /km of CO2 so falls in the £35 vehicle excise duty band.

This also means it has a tax figure of £2,274, worked out as 13 per cent (10 per cent plus 3 per cent diesel supplement at 120 g/km CO2) x the £17,495 list price. For 22 per cent tax payers, the personal cost is £500 per year – 40 per cent tax payers would have to stump up £910 a year.

“It’s a very complicated process but one that has to be examined carefully if drivers are going to avoid huge personal taxation penalties,” adds Neil.

“From April onwards, when companies come to choosing their new cars they will need to look at these costs in minute detail if they are going to source cars that their employees will want to drive at a time when everyone’s mind is very much focused on every pound they spend.

“Any car in the sub 120 g/km bracket will fall in a new 10 per cent tax banding when calculated on the list price, a three per cent saving over the current system. This is something the company car market hasn’t woken up to yet but the potential savings are huge for both employer and employee as the employer pays National Insurance on the P11D figure while the employee pays tax.

“But a welcome spin-off is that cars that are lower in CO2 outputs are also more likely to consume less fuel, reducing their financial impact still further.

“When you look at the Citroen C4 I mentioned earlier, that can be leased for £241 plus VAT per month and has a combined fuel consumption figure of 62.8 mpg so as well as being environmentally friendly it is also very keen on keeping costs down, too.

“Citroen has a huge choice of cars under the 120 g/km level and a C1 1.0 VT three door is just £119 plus VAT a month while a bigger C3 1.4 diesel comes in at £160 plus VAT a month.

“Skoda has its BlueLine models which will soon include a version of the Superb large car range, too. Only recently, a Superb beat an Audi, BMW, and Bentley in a group test run by a major motoring magazine, which shows the true value of the brand is more than just saving money.

“Whatever cars companies and their drivers look at, they must remember that it’s now more than just list price that affects the tax they pay.

“In fact you will be able to have a seemingly more expensive car in terms of list price that costs less in tax, the exact opposite of the current system, thanks to lower CO2 emissions. For the uninitiated it’s an absolute minefield but I can guide them safely through it.”