Government gear change on company car tax

Why the business-next-door could soon be driving electric.

A clean green era with new emissions tests and benefit in kind (BiK) rates gets on the road in April 2020. But what does the drive to cut emissions and grow electric technology look like in terms of tax?

Key to the new regime is the new Worldwide Harmonised Light vehicle Test Procedure (WLTP), which replaces the current New European Driving Cycle (NEDC) emissions test. With higher carbon dioxide (CO2) readings anticipated under WLTP, vehicle tax will be impacted in various ways. From April 2020, the CO2 value obtained under WLTP will be used to determine Vehicle Excise Duty - although existing VED rates are retained in April, pending further government consultation. And for all new cars provided to employees and available for private use, first registered from this date, the WLTP CO2 figure will affect BiK treatment.

For BiK purposes, tax is worked out by multiplying the list price of the car (including most accessories) by the 'appropriate percentage'. Percentages are determined by fuel type and level of CO2 emissions.

  • For cars first registered from 6 April 2020, most BiK rates are reduced by two percentage points. This changes the rates published earlier and applies for the 2020/21 tax year only.
  • In 2021/22, and again in 2022/23, they increase by one percentage point.
  • BiK calculations for 2020/21 and 2021/22 now involve checking whether a vehicle is registered before, or after 6 April 2020, to work out the appropriate percentage.
  • All new zero emission models are free of company car tax for one year from 6 April 2020, to incentivise the shift to green vehicles. The benefit is 1% in 2021/22, and 2% in 2022/23.
  • Electric mileage range will be key to the appropriate percentage for some hybrid vehicles.
  • The BiK percentages for cars registered before 6 April 2020 are frozen for 2021/22 and 2022/23.

The changes provide business owners with considerable food for thought, and we have only been able to highlight key points here. The decision to go electric is a major one, involving not just tax, but consideration of the available infrastructure, charging facilities, total business mileage, and other issues. Do contact us for an in-depth discussion of your business motoring strategy, and tax efficient provision of employee benefits.

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