Changes to company car tax rules means thousands of business drivers face massive increase in their tax bills from 6 April 2011.

The new rules remove the £80,000 price ceiling previously imposed, where company car drivers paid tax on a value up to but not exceeding £80,000. This meant drivers of Ferraris, Lamborghinis and Bentleys costing as much as £120,000 paid the same as those driving an £80,000 BMW.

With the £80,000 cap removed to raise more revenue for the government, the company driver of a £222,000 Ferrari 612 Scaglietti faces a 182% increase in their P11D company car tax bill. They will now have to pay £38,918, while their employer also faces an increased bill of £10,741 for Class 1 National Insurance Contributions (NIC).

The steep rise in company car tax may not affect the super rich who drive such cars from new, but company drivers choosing a used supercar or luxury saloon also face huge increases. Company car tax is calculated on the list price of a car when new, so someone running a six-year old Ferrari 612 worth £65,000 still faces a tax and NIC bill of £39,500 per year.

David Heaton, of tax consultants 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 introduced by Alistair Darling in 2009 to ensure drivers of expensive cars paid a 'fair level of tax'. The real result is more likely to be the disappearance of supercars from companies. While the super rich may not worry about the extra tax, there is a real danger that some drivers of older company-owned supercars could be caught out."

Other rule changes for company car drivers that come into effect in April 2011 include the abolition of special discounts for hybrid-powered, bi-fuel and E85 ethanol-powered cars.

Alisdair Suttie - 9 Mar 2011