Child benefit loss threat to company car drivers

Thousands of company car drivers will lose Child Benefit payments worth thousands of pounds when changes to tax rules push them into the 40% tax bracket according to CAP, the car price experts.

The problem – which will cost an affected company car driver with 3 children almost £2,500 a year – lies in a succession of forthcoming tax rule changes, beginning this April.

From April of this year the amount of taxable income before which the 40% bracket is reached falls from £37,400 to £35,000. As widely reported in recent weeks, this change will significantly increase the number of higher rate tax payers.

What has not been reported is that this lays the seeds for thousands of company car drivers to lose their Child Benefit in 2014.

The next measure which will specifically bring more company car drivers into the higher rate tax bracket is the change in BIK rates for cars emitting 120g of CO2 per kilometre, or less.

This comes into play in 2012/13 when the CO2 thresholds relating to Benefit In Kind are lowered from 120g/km to 100g/km. This will increase the taxable benefit of many cars that were chosen because they currently enjoy a preferentially low tax rate.

The problem is illustrated by the impact of changes in BIK for the driver of an Audi A4 2.0 TDI 136 SE.

Since 2010 this car has had a taxable benefit value of £3,498.95 but this rises in the tax year 2012/13 to £4,844.70. This increase of more than £1,300 – or more than 38% in taxable benefit – is almost certain to tip some drivers of this and similar vehicles into the 40% tax bracket – thus removing their entitlement to Child Benefit.

The effect will be even further amplified for some drivers by changes to the taxable benefit value of company-provided fuel.

CAP’s Mark Norman said: “Although the increase in higher rate taxpayers in relation to changes in company car taxation has been widely reported the real financial impact story is the loss of Child Benefit for many.

“Unless there are changes in future budgets, it means that even where somebody crosses into the 40% threshold by just £1 they will lose £20.30 per week for the first child and £13.40 for each subsequent child.

“It will have a devastating financial impact on many drivers who will have no opportunity to change their car in time. And the lack of information on the basis of BIK rates from 2013 means it is impossible for anybody to order a new company car today which will help them to avoid this issue.”