For those new to the company car world, company car tax can be a bit of a confusing subject. The legalities change regularly, so it’s important that you keep as up to date as possible with the current rules and regulations. There was a big change back in 2018, when the WLTP test was brought in to more accurately check the emission levels and fuel efficiency of all new cars. And, as of 2020, the government are set to implement some of the biggest changes in years for both businesses and their employees.
First off, what is company car tax and how do you work out how much you should be paying?
Company cars are a perk offered by employers as an additional benefit on top of an employee’s salary. Because of the further potential for the utilisation this vehicle for personal use, employees must pay some tax on the effective value of this. The amount of company car tax you pay on a vehicle is determined by a few different factors; how much you’re paid (whether you're in the 20% or 40% tax bracket), the cost of the car, and how environmentally friendly that car is.
The CO2 emmissions the car produces determine its BIK (benefit-in-kind) tax band. This percentage, alongside the P11D value of the car which quantifies the effective value you receive (list price + optional extras + delivery fees + VAT), determines the BIK rate you need to pay. This is also used by HMRC to calculate how much income tax an employee is charged, and what National Insurance contributions an employer needs to make.
Simply put, you'll pay less Benefit-in-kind tax on lower value, more environmentally friendly vehicles.
What are the current company car tax regulations?
In an effort to reduce and regulate the overall emissions of cars on the road, the government offers incentives for companies to provide their staff with more economical company cars. Whilst it is still currently in the interest of the company to provide employees with cars that produce fewer emissions, even a fully electric vehicle currently incurs company car tax charges. This is set to change in April 2020.
What changes are coming into effect?
As of April 6th 2020, the benefits from choosing a purely battery electric vehicle (BEVs) or plug-in-hybrid vehicle (PHEV) will increase dramatically. Those who choose to drive a fully electric vehicle as their company car, or already do so, will not have to pay any benefit-in-kind (BIK) tax in 2020/2021. In the following years, whilst it won’t be zero, the rates will be just 1% in 2021/2022 before going up to 2% in 2022/2023. To put this into perspective, at the time of writing in January 2020 this currently sits at 16% for fully electric vehicles
See the below tables to show the changes to BIK rates for cars first registered before and after April 2020. Rates for 2023/24 onwards are yet to be confirmed.
What does that mean for you?
Big benefits can be seen for those who switch to a low emission vehicle when they next go to choose their company car, and for those already driving an electric car. If you’re not ready to make the fully electric jump just yet, go for a more efficient hybrid and still see a saving. You'll note that with the new regulations, those drivers who were already in zero emission vehicles prior to April 2020 will also benefit from the 0% BIK in 2020/2021. Those who drive the mid-range emission cars (75-149 g/km) will still see savings in the next few years. But it's the people who drive high emission company cars that produce more than 155 g/km will suffer the most in the next few years, with increased rates from 2020 until at least 2023. You can search by emissions levels on our website… here's a list of current deals on cars that produce 0 g/km C02. Or you can estimate how much tax you’ll currently pay here with HMRC’s company car and fuel benefit calculator.
And for those worried about the enjoyment factor of driving an electric vehicle… you needn’t be. Take a look at our Leasing Expert, Josh’s reaction to putting his foot down in a Tesla Model 3 for the first time.
* All vehicle images and car descriptions on this site are for illustration and reference purposes only and are not necessarily an accurate representation of the vehicle on offer.
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