ICAS TAX director Derek Allen has warned companies to beware of the possibility of a stealth tax emerging in relation to company cars.
ICAS issued an information statement in which it said a form of stealth taxation could emerge as a car depreciates more than capital allowances given for tax purposes. This means that income becomes artificially inflated.
“Allowances for higher emission cars are currently given at a rate that is much slower than the actual rate of commercial depreciation,” said Allen.
As announced in the Budget, tax rates on company cars are to rise by one per cent to a maximum of 35% in 2014-15 and by two percentage points to a maximum of 37% in 2015-16 and 2016-17.
From April 2013, the CO2 emissions threshold for the main rate of capital allowances for business cars and lease rentals will be reduced from 160g/km to 130g/km.
ICAS said the changes will end up resulting in additional costs for company car users and employers, including higher tax and national insurance contributions.
“The more restrictive rules mean that the car has depreciated more than the allowances given for tax purposes,” said Allen.
“Instead of paying tax at 20% on their income, an individual would end up paying an artificial hidden rate of 24.75%.
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