With Concern over climate change hitting headlines, it could be apt that the company car tax program aims to promote ‘good’ choices; and rewards those with reduced tax bills that opt for affordable zero-emission vehicles.
The new taxation regime for company cars has been around since April 2002 in essentially its present configuration. The scheme, which charges a percentage of the car’s selling price to tax based on emissions of carbon dioxide (CO2) from the vehicle, is a common one.
Company car tax changes: 2019/20
Since 2002, however, there have been various improvements to the scheme, especially about electric and low-emission cars; and more are on the horizon.
The appropriate percentage
After its launch, the required percentages have adjusted year-on-year – in 2002/03, 15 percent of the list price will be paid to an employee with a corporate car with 165g / gm CO2 emissions; in 2019/20, the maximum premium of 37 percent applies to cars with 165g / km CO2 emissions and beyond.
The corresponding percentage for zero-emission vehicles and vehicles within the 1-50g / km range is set at 16 percent for 2019/20-up from 13 percent in 2018/19. A rise of three percentage points from the estimates for 2018/19 occurs to all pollution points before the full penalty of 37 percent is met.
The following table shows the appropriate percentages applying for 2018/19 and 2019/20:
|CO2 emissions||2018/19||2019/20||CO2 emissions||2018/19||2019/20|
|0 (electric cars)||13%||16%||130 – 134g/km||27%||30%|
|1 – 50g/km||13%||16%||135 – 139g/km||28%||31%|
|51 – 75g/km||16%||19%||140 – 144g/km||29%||32%|
|76 – 94g/km||19%||22%||145 – 149g/km||30%||33%|
|95 – 99g/km||20%||23%||150 –154g/km||31%||34%|
|100 – 104g/km||21%||24%||155 – 159g/km||32%||35%|
|105 – 109g/km||22%||25%||160 – 164g/km||33%||36%|
|110 – 114g/km||23%||26%||165 – 169g/km||34%||37%|
|115 – 119g/km||24%||27%||170 – 174g/km||35%||37%|
|120 – 124g/km||25%||28%||175 – 179g/km||36%||37%|
|125 – 129g/km||26%||29%||180g/km and above||37%||37%|
The increase in the appropriate percentages means that. The tax benefit for a person driving a £30,000 company car with CO2 emissions of 165g/km or less will be £900 more in 2019/20 than in 2018/19. That is equivalent to a tax increase of £360 for a larger taxpayer, and a normal rate of £ 180 for a taxpayer.
Employers’ contributions to Class 1A Social Insurance would now cost £ 124.20 more.
Alternative valuation rules
If an optional remuneration provision (OpRA) applies to the vehicle, where the CO2 emissions exceed 75g / km, the vehicle shall be paid with reference to the foregone profit or cash substitute such that it meets the cash substitute under the business car tax law.
Transitional arrangements mean that the replacement conditions of evaluation do not take effect until April 6, 2021, because the agreement was in operation on April 5, 2017, unless the law has been modified or extended before this time.
Compared to petrol cars of the same emission standard, Diesel cars attract an addition. The purpose of the supplement has changed since 6 April 2018, applying from that date to cars that are registered on or after 1 January 1998 and do not meet the specific driving emissions 2 (RDE2) requirement set out in Annex IIIA to Commission Regulation (EU 2017/1151). This is set to a standard of emissions of Nitrogen Oxide ( NOx) not exceeding 80 mg/km.
Manufacturers must certify the amount of NOx emissions from a vehicle on the compliance certificate, which will document the Euro-standard that the vehicle is accredited to. Cars that comply with RDE2 meet Euro 6d standard. Cars with real-world NOx emissions higher than 80 mg/km needed to reach the RDE2 requirement are entitled to a diesel exception, just though NOx emissions for petrol cars registered on or after 1 January 1998 are not.
Vehicle Inspection Tool
When a car has been designed on or after September 2018, the electronic vehicle inspection tool (https:/vehicleenquiry.service.gov.uk) can be used to check whether an automobile follows Euro 6d. This information can also be found on the V5C registration document where the car is licensed on or after 1 September 2018, cars are shown as Euro 6AJ, 6AK, 6AL, 6 AM, 6AQ or 6AR follow Euro 6d standard (and therefore escape diesel supplementation).
As of April 6, 2018, the diesel supplement is set at 4 percent. However, the cumulative fee (after the replacement has been applied) is reduced to 37%.
HMRC has stated recently that they will not foresee any cars to fulfill the RDE2 criteria until 6 April 2019. So, when the most premium continues, the expectation is that all-electric vehicles will be subject to a diesel substitute in 2018/19.
A new fuel class “Type F” will see on form P46(Car) from 6 April 2019. When cars follow Euro 6D standard (and thus meet RDE2). HMRC had before suggested the use of type A fuel to warn diesel cars that follow Euro 6b requirements.
Electric and hybrid cars
As of 6 April 2020, new lower acceptable percentages will apply to electric cars and hybrid vehicles with electric range. The figures are considerably smaller than those currently available to low-emission and hybrid vehicles.
The level for an electric vehicle or hybrid car with an electric range reaching 130 miles will fall to 2 percent as of 6 April 2020 (the price for these vehicles is set at 16 percent in 2019/20). For other cars falling under the 1—50g/km band, as seen in the table below, the correct percentage would vary from 5 percent to 14 percent depending on the car’s electric range.
|CO2 emissions||Electric range||Appropriate percentage|
|1 – 50g/km||130 miles or more||2%|
|70 – 129 miles||5%|
|40 – 69 miles||8%|
|30 – 39 miles||12%|
|Less than 30 miles||14%|
|51 – 54g/km||N/A||15%|
|55 – 59g/km||N/A||16%|
|60 – 64g/km||N/A||17%|
|65 – 69g/km||N/A||18%|
|70 – 74g/km||N/A||19 %|
The appropriate percentage is set at 20% for cars with emissions, rounded down to the nearest 5g/km, of 75g/km. Thereafter, the charge increases by one percentage point for each 5g/km increases in emissions, until the maximum charge of 37% is reached.
Indeed, the appropriate percentage for all cars with emissions of 80g/km will be less in 2020/21 than in 2019/20, making electric and low-emission cars the smart choice.
The reduction from 16% to 2% for zero-emission cars and hybrids with an electric range of at least 130 miles translates into a reduction in the taxable benefit of £4,200. For a car with a list price of £30,000, equal to a tax saving of £1,680 for a higher rate taxpayer and £840 for a basic rate taxpayer.
Employers will also save Class 1A National Insurance contributions of just under £580.
The provision of fuel for private motoring in a company car is rarely a worthwhile benefit unless private mileage is very high. The fuel multiplier is set at £24,100, which means the list price of the car is less than £24,100. The tax on the fuel will be more than the tax on the car.
HMRC does not regard electricity as a ‘fuel’ for fuel benefit purposes. No taxable benefit arises if the employer meets the cost of electricity for private journeys in a company car. The employee can enjoy the benefit tax-free.
Employees without a company car can also enjoy tax-free employer-provided electricity. Therefore, a charging point must be provided at the tax company. The exemption is not limited to the employee’s own car. It can also be provided for a car in which the employee is a passenger.
Where fuel is not provided, the employer can reimburse company car drivers for the cost of fuel used for business mileage tax-free by using HMRC’s advisory fuel rates. Where the car is an electric car, a tax-free reimbursement can be made at the rate of four pence per mile. Advisory fuel rates, updated quarterly, can be found on the Gov.uk website at www.gov.uk/government/publications/advisory-fuel-rates.
Significant tax reductions are available from 6 April 2020 to electric and hybrid cars. The greatest savings are available for those choosing electric cars. Those with an electric range of at least 130 miles. An electric can perfect for both employees and employers.