New UK Tax On Luxury Cars Will Hit Company Supercars

Next month, a supercar tax will go into effect, a hard hit to owner-directors, senior executives, and their employers. Beginning April 6, company cars subject to P11D tax will experience a huge increase.

The maximum list price of £80,000 will be abolished, resulting in a hefty tax for vehicles like Bentleys, Lamborghinis, Ferrarris, and even high-end BMWs and Mercedes.

Currently, National Insurance Contributions (NICs) and income tax are restricted, based on the £80,000 cap. The results are maximum NICs of £3,584 and £14,000 pa income tax.

With the change, a company executive driving a £222,000 Ferrari 612 will soon be paying nearly £39,000 pa income tax. The employer will be on the hook for a Class 1A NICs bill of over £10,000 pa.

Add those and you get a total 2011-12 tax bill of nearly £50,000, a 182 percent increase.

A driver purchasing a used car is not safe from the financial implications. HMRC charges are based on list price, which is the amount the car would cost if it were new. If they are not careful, used car buyers could be assuming a tax liability rather than getting a bargain when purchasing their next automobiles.

Baker Tilly employer consulting partner David Heaton said the tax increase was initially announced in 2009 by previous chancellor Alistair Darling. The chancellor’s goal was to ensure that “a fair level of tax” was paid by drivers of the most expensive cars.

According to Mr. Tilly, the more likely result is that supercars will disappear from companies.

The very wealthy might not be concerned with hefty car loans or this extra tax. However, drivers of older corporate-owned supercars might be. A 2005 Ferrari 612 Scaglietti costs approximately £65,000.

When purchased as a company car, taxes are based on its £177,000 list price, resulting in annual NIC and tax of £39,500, more than half the vehicle price.