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 April 6.

Under new rules coming in on April 6, 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 about £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 said: “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.”

A summary of other company car tax changes on the horizon:

  • Cars with CO2 emissions of no more than 120g/km – Qualifying Low Emissions Cars or QUALECs – will be taxed at 10% of list price (+3% for diesels)
  • Cars with CO2 emissions of over 125 g/km will be taxed at between 15% and 35%.
  • Subject to the 35% maximum, a 3% surcharge will apply to all diesels.
  • There will no longer be any special discounts for hybrid or bi-fuel cars, or for those that run on E85 ethanol.
  • Plug-in electric cars (and vans) will attract no benefit-in-kind charge for the next four years.
  • From April 2012 we will have a new tax rate of only 5% for cars with ultra-low CO2 emissions of 75 g/km or less, with a new emissions scale starting at 10% (for 76–99 g/km) and rising by 1% per 5 g/km to 35%.