23 Jun Company car tax changes: 2019/20
With concerns over climate change hitting the headlines, it is perhaps appropriate that the company car tax regime seeks to encourage ‘green’ choices; and rewards those who opt for cheaper lower emission cars with lower tax bills.
The current regime for taxing company cars has been around in broadly its current format since April 2002. The system, which charges a percentage of the car’s list price to tax depending on the car’s carbon dioxide (CO2) emissions, is a familiar one.
However, since 2002 there have been various tweaks to the system, particularly as regards electric and low emissions cars; and there are more on the horizon.
The appropriate percentage
Since its introduction, the appropriate percentages have increased year-on-year – in 2002/03, an employee with a company car with CO2 emissions of 165g/gm would be taxed on 15% of the list price; for 2019/20, the maximum charge of 37% applies to cars with CO2 emissions of 165g/km and above.
For 2019/20, the appropriate percentage for zero-emission cars and cars within the 1-50g/km band is set at 16% – up from 13% for 2018/19. A three-percentage-point increase on the 2018/19 figures applies at all emission points until the maximum charge of 37% is reached.
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 taxable 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. This equates to a tax increase of £360 for a higher rate taxpayer and £180 for a basic rate taxpayer.
Employers will also pay £124.20 more in Class 1A National Insurance contributions.
Alternative valuation rules
Where the car is provided via an optional remuneration arrangement (OpRA), if the CO2 emissions are more than 75g/km, the car is taxed by reference to the salary foregone or cash alternative offered where this is higher than the cash alternative under the company car tax rules.
Transitional rules mean the alternative valuation rules do not apply until 6 April 2021, where the arrangement was in place on 5 April 2017, unless the arrangement is varied or renewed prior to that date.
Diesel cars attract a supplement compared to petrol cars with the same level of emissions. The nature of the supplement was changed from 6 April 2018, applying from that date to cars that are registered on or after 1 January 1998 and which do not meet the real driving emissions 2 (RDE2) standard under Annex IIIA of the Commission Regulation (EU 2017/1151). This is set at a level of Nitrogen Oxide (NOx) emissions not exceed 80mg/km.
Manufactures will certify the level of a car’s NOx emissions on the certificate of conformity, which will record the Euro-standard to which the car is certified to. Cars that are RDE2 compliant meet Euro standard 6d. Cars that have a real-world NOx emissions figure greater than the 80mg/km needed to comply with the RDE2 standard are subject to the diesel supplement, as are diesel cars registered on or after 1 January 1998 which do not have a certified NOx emissions figure.
Where a car was manufactured on or after September 2018, the online vehicle enquiry service (https://vehicleenquiry.service.gov.uk) can be used to check whether a car meets the Euro standard 6d. This information is also available on the V5C registration document where the car is registered on or after 1 September 2018, Cars that are shown as meeting Euro status 6AJ, 6AK, 6AL, 6AM, 6AQ or 6AR meet Euro standard 6d (and, therefore, escape the diesel supplement).
The diesel supplement is set at 4% from 6 April 2018. However, the maximum charge (after application of the supplement) is capped at 37%.
HMRC have previously stated that they did not expect any cars to meet the RDE2 standard prior to 6 April 2019 – thus unless the maximum charge applies, the expectation is that the diesel supplement will apply to all diesel cars in 2018/19.
From 6 April 2019, where cars are compliant with Euro standard 6D (and thus meet RDE2), a new fuel type – Type F – will be shown on form P46(Car). Previously, HMRC advised that fuel Type A should be used for notifying diesel cars meeting Euro standard 6b.
Electric and hybrid cars
New lower appropriate percentages are to apply to electric cars and hybrid cars with electric range from 6 April 2020. The percentages are considerably lower than those currently applying to electric and low emission cars.
From 6 April 2020, the percentage for an electric car or a hybrid car with an electric range exceeding 130 miles will fall to 2% (the charge for such cars is set at 16% for 2019/20). For other cars falling within the 1—50g/km band, the appropriate percentage will range from 5% to 14% depending on the electric range of the car, as shown in the table below.
|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, equivalent 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, meaning that where 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.
However, HMRC does not regard electricity as a ‘fuel’ for fuel benefit purposes. Therefore, no taxable benefit arises if the employer meets the cost of the electricity for private journeys in a company car; the employee can, therefore, enjoy the benefit tax-free.
Employees without a company car can also benefit from tax-free employer-provided electricity where the employer provides a charging point at or near the place of work. 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 for electric and hybrid cars, with the greatest savings available for those choosing electric cars or those with an electric range of at least 130 miles. Going electric can benefit both employees and employers.