Are you fed up with high tax charges on company cars? The future is electric!
If the answer to this question is “yes” each time you see your tax code taking large amounts of PAYE for the company car that you drive, an alternative is available. It may however require a change in thinking and behaviour, which is exactly what was intended by the changes to the company car tax regime 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 April 2020 we have been encouraged to change to electric or low emission cars. As outlined below, the sizeable tax saving which is available, should make you at least consider switching to “cleaner” cars.
What are the current rates (2022/23) of Benefit in Kind (BIK) for company cars?
Petrol and RDE2 compliant diesel cars:
- Start at 14% 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:
From 6 April 2020, two benefit scale tables were introduced, which in most bands distinguished between cars registered before or on/after 6 April 2020. These two scale tables have now been aligned from 6 April 2022 as follows:
- 2% on all fully electric cars, and
- 2% for cars emitting up to 50 grams CO2/km with at least 130 miles electric only range
That is worth repeating, in 2022/23 2% on electric cars AND on the lowest band of hybrids! These rates will also remain frozen until the 2024/25 tax year.
There are also considerably reduced rates for hybrids below 50 grams CO2/km with a more limited electric-only range, so they too are worth considering, increasing from 2% for an electric only range of 130 miles or more in increments up to 14% for hybrid vehicles with an electric only range of under 30 miles.
Any of these rates would mean a significant reduction in your company car tax bill when compared to a standard petrol or diesel vehicle. Do the sums yourself, apply 2% instead of your current BIK% to the list price of the vehicle when new to calculate your annual cash equivalent. Then multiply that by your marginal tax rate, and you will see a considerable amount of extra cash flowing into the family coffers.
Alternatively, you could consider 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.
- New nil emission cars attract first year capital allowances (i.e 100%) until 31 March 2025, whilst new low emission cars (< 50g CO2/km) attract capital allowances at the main rate of 18%.
- As the BIK tax charge comes down, the Company’s Class 1A NIC liability would also reduce (currently 15.05% of the BIK charge).
- Fully electric cars and some hybrid vehicles still qualify from the tax savings achieved by salary sacrifice arrangements and are not caught by the OPRA rules.
We were once encouraged to buy diesel – will the benefits to buy electric be retracted in the future?
Do electric and low emission cars have sufficient range for you with the existing infrastructure?
Both have improved rapidly in recent years and will continue to improve over time.
Will I be limited in model options available to me?
Maybe, however, manufacturers have seen the rapid growth within the electric car industry (11% of new cars sold in the UK in 2021 were electric vehicles) and they are looking to develop their products accordingly to meet the increased demands from customers, providing more options year on year.
Employees charging 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 or near to 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. Furthermore for company cars only, an employer can even pay for a vehicle charging point to be installed at the employee’s home without a BIK arising!
The rules on paying for charging electric cars can be complex depending on the circumstances involved, so care needs to be taken to ensure that any BIK implications are considered.
So, provided you’re confident that electric and low emission car ranges are sufficient for your needs, taking another look at these cars is very worthwhile for tax purposes, as well as reducing your carbon footprint and impact on the planet. Contact us here.
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