Traditionally, finance directors have chosen their company cars from the executive and luxury sectors and have been heavily penalised for it. Company car tax in the past favoured the high-mileage reps and salesmen, while those at the top end of the company hierarchy, the so-called perk drivers, paid dearly.
However, the new carbon-dioxide-based tax means those directors who choose to stick with their luxury V8s are unlikely to be worse off than they were. And anyone who drives low business mileage and opts for a car producing less than 245g/km of carbon dioxide should actually be in better financial shape over the next three years than they were under the old system. Consequently, while the rest of the workforce is downsizing to ensure the taxman doesn’t empty their pockets completely, many directors will still opt for favourites such as the S-Class Mercedes, BMW 5-Series and Jaguar XJ8.
But the story doesn’t end here. The government has weighted the new scheme so that the thresholds for the percentage bands of carbon-dioxide emissions are lowered further in the tax years 2003 and 2004 – and it makes sense for directors to lead by example and consider their company car choice carefully. Taking this route also means that, if your car changes tax bands in a year or two as a result of lower thresholds, the increased bill won’t be such a shock.
The good news for drivers is that, just because a car has to make financial sense, they don’t have to sacrifice driving and ownership pleasure, not to mention executive image, at the altar of the Inland Revenue. Opting for a cleaner, greener car will also score brownie points with your workforce, as well as helping keep a grip on your wallet, as the following short reviews of the leading contenders show.
The Mercedes S-Class has long been one of the finest luxury cars on the market and, in its latest incarnation, is a leading candidate for best saloon in the world. It has great performance, superb refinement, a spacious and extremely comfortable cabin and a classy image, so it’s no wonder it is often the first-choice director’s car. The most popular model, the S320 has a refined and powerful 3.2 V6 engine – and while it drives beautifully, it does now attract the highest rate of taxation (35%). To run the £46,690 car for a typical three-year period would cost a hefty £19,533 in tax.
But the budget-watching, carbon-dioxide-aware executive needn’t exclude Mercedes’ luxury car altogether. The S320 CDi, which uses a super-smooth, six-cylinder, turbo-diesel engine, has lower carbon-dioxide emissions as well as a lower list price. This combines to cost a CDi owner £15,402 over the same three-year deal – still a lot of money, but 20% less than you would have to pay for the petrol option. What’s more, there’s no need to feel hard done by while driving what is the only diesel-powered luxury car on the UK market. The engine is very refined and every bit as swift as the petrol version, while the cabin is quiet at all speeds. Add in its superior fuel economy and the S320 CDi makes good sense regardless of the tax.
But if you really don’t fancy going down the diesel route, one of the cheapest ways to luxury motoring is the Jaguar XJ8 3.2. Its V8 engine produces 290g/km of carbon dioxide, so it’s in the 35% bracket, but its relatively low list price keeps the demands just about manageable. At £35,950, this sleek British car will cost a company car driver #5,008 in each of the first three years of the new tax scheme. That’s £4,500 less than the petrol Merc, which makes the fine riding and cultured Jag a tempting prospect.
Another favourite amongst FDs is the Audi A8. The 2.8 Quattro is also in the highest tax band, so it costs a company exec around £5,330 per tax year. But its smaller engine and light aluminium body shell gives better fuel economy than its competitors, making it another (slightly) cheaper alternative to the Mercedes. It is also the only luxury car with four-wheel drive, and recent revisions have improved ride quality and handling over earlier models.
The Lexus GS300 has recently enjoyed great popularity. Its smooth engine and gearbox, top-notch build quality, generous levels of equipment and superb reliability make it an excellent choice. Like the other luxury cars here, it lands in the 35% tax band, although its list price of £28,450 makes the annual tax demand a reasonable £3,598, giving a bill of £10,794 for the first three years of the new scheme.
The main competitors to the Lexus are also finance director favourites: the Audi A6 and BMW 5-Series – both of which are available as diesels.
In petrol form, the 5-Series has long been top of the class, but for tax purposes and a greener choice, the 530d is an excellent alternative. Not only does it have one of the best diesel engines around, it also retains the sporty drive and power of its petrol siblings. Emissions of 189g/km mean a first year tax bill of £2,571. This rises to £2,805 in 2003 and £3,038 in 2004, for a total bill of £8,414 over three years.
The Audi A6 2.5 TDi155 is a particularly attractive option for the money-conscious and green exec. Not only does it have a low tax bill, it also comes fitted with a Multitronic gearbox. This continuously variable box pulls off the clever trick of not increasing carbon-dioxide emissions, which is a problem with most automatics, and the diesel engine has proved every bit as good as the BMW’s. Add to this a three-year tax bill of £7,708, a supple ride and build quality that’s second to none and it’s clear why the A6 is so popular among directors.
Another contender is the Saab 9-5. Recent improvements mean the Swedish car grips and handles far better than before and its brilliant cabin, comfortable seats and spacious interior all serve to push it to the forefront of image- and cost-conscious minds. The 2.0-litre’s turbo-charged engine produces 218g/km of carbon dioxide, but its low list price (£21,395) makes it a tax-friendly choice. Taking carbon-dioxide threshold decreases into account, the Saab will cost £6,874 in tax from now until 2004.
A prestigious, expensive and good-looking motor has been part of most directors’ overall package for decades now, and Mr Brown’s latest initiative does not look as if it will have much impact at the top end of the company car market. Opting in, rather than opting out, would appear to make more sense than ever for the director still puzzling over which way to jump.
Indeed, it’s predicted that thousands of top executives who saw previous tax changes as a reason to get rid of their prized company cars will be returning to the fold. And who wouldn’t be tempted, with guarantees of no insurance complications, maintenance or resale worries – especially when there is the added justification that a luxury car can be a vital part of executive remuneration and will help impress customers?
However, if everyone else in the company is expected to get used to something in which luxury, size and performance will be compromised, FDs should be ready to play their part, too. As a result, there’s one question, which every FD should be ready to answer: can you justify the car you’ve chosen in today’s environmentally-aware, fuel-saving climate and in the light of these BIK tax changes?
The best strategy here would be to demonstrate your awareness of how the situation affects everyone, and choose your next vehicle based not only on the image you and the company need to present, but also, as far as possible, on those all-important green credentials.