Are you fed up with high tax charges on company cars? The future is electric!

Published by Paul Roe on 2 August 2019

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If the answer is “yes” each time you see your tax code taking large amounts of PAYE for the company car that you drive, redemption may not be far away. It may however require a change in thinking and behaviour, which is exactly what is intended by the changes in the company car tax regime being introduced in April 2020.

Most of us remember the encouragement we were given through the tax system to steer us away from petrol engines to diesel. From next tax year we will be encouraged to change to electric or low emission cars. As outlined below, the sizeable tax saving, which will be available, should make you at least consider switching to “cleaner” cars.

What are the current rates of Benefit in Kind (BIK) for company cars?

Petrol and RDE2 compliant diesel cars:

  • Start at 19% of the list price when new.
  • Increase to 37% in 1% increments as CO2/km increases.
  • Non RDE2 compliant diesels suffer a further 4% additional charge.

Electric and hybrid cars:

  • Are treated more generously, but still suffer a charge between 13% and 16% of the list price when new.

What are the Rates for 2020/21 to 2022/23 inclusive?

From 6 April 2020, two benefit scale tables are being introduced, which in most bands distinguish between cars registered before or on/after 6/4/20, as follows:

  • 0% on all fully electric cars, and
  • 0% for new cars emitting up to 50 grams CO2/km with at least 130 miles electric only range

That is worth repeating, in 2020/21 0% on electric cars whether registered before or after 6 April 2020 AND on the lowest band on new hybrids from that date!

That is only scheduled to last a year, but the two subsequent tax years will still be very enticing. The rate for fully electric cars, whether registered pre or post 6/4/20, increases:

  • to 1% in 2021/22, and
  • to 2% in 2022/23.

The rates for cars emitting up to 50 grams CO2/km with at least 130 miles electric only range will differ depending on whether registered before or on/after 6/4/20, as follows:

Registered before 6/4/20:

  • 2020/21 – 2%
  • 2021/22 – 2%
  • 2022/23 – 2%

Registered on/after 6/4/20 will match the rates for fully electric cars at:

  • 2020/21 – 0%
  • 2021/22 – 1%
  • 2022/23 – 2%

Considerably reduced rate bands are also being introduced for new hybrids below 50 grams CO2/km with more limited electric-only range, so they too will be worth considering post 6 April 2020.

Any of these new rates would mean a significant reduction in your company car tax bill. Do the sums yourself, apply 0%, 1% or 2% instead of your current % to the list price when new, multiply that by your marginal tax rate, and you will see a considerable amount extra flowing into the family coffers.

Alternatively, you may consider this gives opportunity for additional company cars, where you are taxed at a low rate but also providing a safe car for a family member that won’t (some Tesla’s aside) allow silly speeds and rates of acceleration? That may appeal for your young ones newly embarking on their driving experiences.

There’s more:

  • Nil and low emission cars (< 50g CO2/km) attract first year capital allowances.
  • As the BIK tax charge comes down, so would the Company NIC Class 1A liability reduce (13.8% of the lower BIK charge).

Other considerations

  • We were once encouraged to buy diesel – will the benefits to buy electric be retracted in the future? Seems unlikely.
  • Do electric and low emission cars have sufficient range for you with the existing infrastructure? Both will improve over time.
  • These tax advantages are not yet widely appreciated, but when they are, demand for electric and low emission cars is likely to increase as “gas guzzlers” are traded in. And, latent demand for hybrids is being built up as many manufactures will not see you one before 1 January to help their EU reporting under the new “CAFE” rules being introduced.
  • There are Government grants up to £3,500 for the purchase of such no and low emission vehicles; find out more here: https://www.gov.uk/plug-in-car-van-grants

Employees charging their own electric cars?

Rules already exist to allow employers to install charging facilities for electric and plug-in hybrid cars and vans, provided:

  • It is available to all employees.
  • It is at premises under the control of the employer (i.e. not at the employee home).

Once installed, this is specifically exempted from an income tax charge on employees as a BIK.

So, provided you’re confident that electric and low emission car ranges are sufficient for your needs, taking another look at these cars will soon become very worthwhile for tax purposes, as well as reducing your carbon footprint and impact on the planet. It is however a complicated area so please contact Paul Roe, Partner here or on +44 (0)330 124 1399 if you would like to learn more.

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