From 6 April 2020, how carbon dioxide emissions for cars measuring change. Moving from the New European Driving Cycle (NEDC). It utilizes the WLTP for cars registered on April 6, 2020, or after April 6.
The appropriate percentages for cars registered on or after 6 April 2020 are reduced. Being two percentage points lower than cars with the same CO2 emissions registered before 6 April 2020 for 2020/21 and one percentage point lower for 2021/22. From 2022/23 the figures matched the process used to calculate the pollution.
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Zero-emission Cars
As part of the change, the required proportion of zero-emission vehicles for 2020/21 and 2021/22 was reduced to 0 percent. This applies regardless of when the car is registered. The charge was set at 2% for 2020/21 and 2021/22 and will revert to this level from 2022/23.
Impact
Electric company car drivers were already set to enjoy a tax reduction. The appropriate percentage for 2019/20 is 16% and was due to fall to 2% from 6 April 2020. The further decrease to 0 percent ensures that in 2020/21. Thus all who opted for an electric company vehicle will reap the tax-free gain. Their employers will also be relieved by the associated Class 1A National Insurance charge.
Case Study
Kim has an electric company car throughout 2019/20, 2020/21, and 2021/22. The car has a list price of £32,000. Kim is a higher-rate taxpayer.
In 2019/20, Kim is taxed on 16% of the list price – a taxable benefit of £5,120. As a higher-rate taxpayer, the tax hit is £2,048 (40% of £5,120). Her employer must also pay Class 1 National Insurance of 13.8% on the taxable amount (£706.56).
In 2020/21, the appropriate percentage is 0% so there is no tax or Class 1A National Insurance to pay. This is a significant reduction compared to 2019/20.
In 2021/22, the charge is 1% of the list price, equal to £320. On which the tax is £128 (assuming a 40% tax rate) and the Class 1A National Insurance is £44.16.
From 2021/22 the charge is 2% of the list price is equal to £640.
Not Quite Zero Emissions
It is also possible to enjoy a company car tax-free in 2020/21. If it is registered on or after 6 April 2020 has emissions of between 1 and 50g/km (measured under the WLTP). Thus, an electric range of at least 130 miles.
Go Electric
The benefits of choosing electric cars from a tax perspective. As well as from an environmental one, are significant.
Extra note: ITEPA 2003, s. 139, 139A (to be amended/inserted by draft Finance Bill 2019 clauses. (see www.gov.uk )
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