Massive BiK tax hike comes into effect
Thursday, April 5, 2007
It was the boom in sales of double-cab pick ups — which are classified as light commercial vehicles — that caused the Chancellor Gordon Brown to focus on the anomalies of van benefit-in-kind. He reckoned many people were avoiding tax by switching to double cabs. He soon realised, however, that this was a relatively minor problem, but there was a potential source of revenue here.
Benefit-in-kind taxation on private use of vans is set to rise by 600 per cent from 6 April. That's potentially bad news for employees, but also for employers. Class 1A National Insurance contribution also rises by 600 per cent and, if an employer provides even a token amount of free fuel for private use, could hit £448 per year, per vehicle.
Van drivers currently pay BiK tax based on a flat scale charge of £500; that means £110 a year for a basic rate (22 per cent) tax payer. On 6 April the scale charge jumps to £3,000, resulting in a £660 tax bill for employees (or £1,200 if they are a 40 per cent tax payer). There is a further scale charge of £500 if fuel for private use is provided.