< Go Back Are low emission company cars tax efficient? Posted: Dec 5, 2019 Are low emissions cars tax efficient ?
Significant
changes are being made from 2020-21 to the company car tax benefits-in-kind
bands affecting ultra-low emission vehicles (ULEVs).
The
taxable benefit arising on a car is calculated using the car's full
manufacturer's published UK list price, including the full value of any
accessories. This figure is then multiplied by the "appropriate percentage",
which can be found by reference to the car's CO2 emissions level. This will
give the taxable value of the car benefit. The employee pays income tax on the
final figure at their appropriate tax rate: 20% for basic rate taxpayers, 40%
for higher rate taxpayers and 45% for additional rate taxpayers. This formula
means that in general terms, the lower the C02 emissions of the car, the lower
the resulting tax charge will be.
For
2019-20, the appropriate percentage for cars (whether fully electric or not) is
16% for those emitting 50g/km CO2 or below, and 19% for those emitting CO2 of
between 51 and 75g/km. This means that the taxable benefit arising on a zero-emissions
car costing, say £30,000 is £4,800, with tax payable of £960 for a basic rate
taxpayer - for a higher rate taxpayer this equates to tax payable of £1,920
By
way of comparison, a 2001cc petrol-engine car with a list price of £30,000, will
attract an appropriate percentage of 37% in 2019-20. This equates to a taxable
benefit charge of £11,100, and a liability of £2,220 a year for a basic rate
taxpayer.
New bands
In
April 2020, new ULEV rates will be introduced, and the most tax efficient cars
will be those with CO2 emissions below 50g/km. There will also be additional
financial incentives for electric only cars
From
2020-21, five new bandings are being introduced for full and hybrid electric
cars. Fully electric (zero emissions) cars will attract an appropriate
percentage of just 2%. This means that the tax benefit arising on an electric
car costing say, £30,000 will be just £600. The resulting tax payable by a
basic rate taxpayer will be £120 a year and £240 for a higher rate taxpayer.
For
cars emitting CO2 of between 1 and 50g/km, the appropriate percentage will
depend on the car's electric range figure:
Mileage
Percentage
130
miles or more
2%
70
- 129 miles
5%
40-69
miles
8%
30-39
miles
12%
Less
than 30 miles
14%
ULEVs
with CO2 emissions of between 50g-74g/km CO2 will be on a graduated scale from
15% to 19% (as is currently the case, diesel-only vehicles will continue to
attract a further 4% surcharge) as follows:
CO2
emissions
Percentage
51
to 54g/km
15%
55
to 59g/km
16%
60
to 64g/km
17%
65
to 69g/km
18%
70
to 74g/km
19%
75
or more
20%
Plus
1%
per 5g/km
Up
to a maximum
37%
Whilst
the journey towards "greener" driving has been, and continues to be, a rocky
one, in 2014/15 a sub-130g/km petrol car was considered green enough to merit
an 18% appropriate percentage. However, by 2020/21, the appropriate percentage
on such a car will have risen to 30%. A sub-100g/km band car that was only
subject to a 12% charge in 2014/15 will also have risen to 24% by 2020/21. On
the other hand, clean air all-electric cars will finally plummet to 2% under
the new company car tax incentives from April 2020.
The
incentives in the new tax bands are clearly designed to encourage ULEVs as a
company car driver's car of choice, and with around 1 million company car
drivers in the UK, this benefit is likely to remain one of the most popular and
potent perks of a job.
Partner Note: ITEPA 2003, ss 139-142;Finance Act (2) Part 1 s2