Company car drivers face paying thousands more in tax under new plans to be announced this month

Drivers of low-emission vehicles will be the worst hit under the plans
Chancellor Philip Hammond could reveal changes in Autumn Statement
Tax rates, which are now at 7 to 11 per cent, could increase to 45 per cent

By Rory Tingle For Mailonline

Published: 02:09 GMT, 6 November 2016 | Updated: 18:07 GMT, 6 November 2016

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The government may scrap low tax rates for employees who make use of company car schemes, it has emerged.

Philip Hammond could reveal the changes, which could lead to 300,000 drivers paying more tax, in the Autumn Statement.

The government may scrap low tax rates for employees who make use of company car schemes, it has emerged. File image

Motorists who use low-emission vehicles would be the worst hit, with tax rates - now set at seven to 11 per cent - increasing to the marginal rate of 20, 40 or 45 per cent.

This would mean an employee driving an eco-car in the 40 per cent tax bracket would have to pay more than £5,000 over a three-year company car contact, The Sunday Telegraph reported.

This would make the schemes far less tempting.

The move is thought to be the result of concerns that companies are reducing the salaries of staff on the schemes, leading to lost revenue for the Treasury.

Mary Glindon, a former member of the transport select committee and the Labour MP for North Tyneside, opposes the changes

Mary Glindon, a former member of the transport select committee and the Labour MP for North Tyneside, opposes the changes.

Mrs Glindon told The Sunday Telegraph company car drivers should not be punished for 'doing the right thing'.

She added that the changes would remove incentives for low-polluting vehicles.

Former Chancellor George Osborne had previously warned popular salary sacrifice schemes could be curbed.

These can also be used for benefits such as gym membership and car parking spaces.

Campaigners said the majority of people who benefit are basic rate taxpayers – who have endured years of meagre pay rises – rather than executives.

Q&A: WHAT IS A SALARY SACRIFICE CAR SCHEME?

Salary sacrifice is a popular perk whereby an employee surrenders part of his salary in return for a non-cash benefit, such as a leased company car.

How does it work?

The cost of leasing the car is deducted from the employee’s gross salary, reducing the amount on which income tax and National Insurance has to be paid. The employee will still have to pay tax and National Insurance – and the employer National Insurance – on the car’s value for tax purposes. But this is often much less than the salary sacrificed because the system is designed to encourage the use of environmentally friendly cars, which benefit from generous tax breaks.

Philip Hammond could reveal the changes, which could lead to 300,000 drivers paying more tax, in the Autumn Statement

How much can you save?

According to consultancy firm Deloitte, if an employee with a cash allowance of £7,520 chooses a low C02 BMW 330e, this car will have a tax value of £3,060 – because of its low emissions. So instead of having to pay 40 per cent income tax on £7,520 – or £3,008 – a higher rate taxpayer would have to pay 40 per cent tax on £3,060 – or £1,224. The taxpayer would make a saving of £1,784. The employer pays National Insurance of 13.8 per cent on the taxable value of the car, rather than the salary sacrificed, slashing the employer’s bill.