Company cars: Are low emissions cars tax efficient?
First of all significant changes are being made from 2020-21 to the company car tax benefits-in-kind bands affecting ultra-low emission vehicles (ULEVs).
The taxable benefit arising on a car is calculated using the car’s full manufacturer’s published UK list price. It includes the full value of any accessories. This figure is then multiplied by the ‘appropriate percentage’. This can be found by reference to the car’s CO2 emissions level. It will give the taxable value of the car benefit. The employee pays income tax on the final figure at their appropriate tax rate:
- 20% for basic rate taxpayers
- 40% for higher rate taxpayers
- 45% for additional rate taxpayers
Hence this formula means that in general terms, the lower the C02 emissions of the car, the lower the resulting tax charge will be.
The appropriate percentage for cars for 2019-20, (whether fully electric or not) was:
16% for those emitting 50g/km CO2 or below
19% for those emitting CO2 of between 51 and 75g/k
For a zero-emissions car costing e.g. £30,000 is £4,800. So this meant that the taxable benefit arising on with tax payable of £960 for a basic rate taxpayer. While for a higher rate taxpayer this equates to tax payable of £1,920
Certainly by way of comparison, a 2001cc petrol-engine car with a list price of £30,000, will attract an appropriate percentage of 37% in 2019-20. This equates to a taxable benefit charge of £11,100, also a liability of £2,220 a year for a basic rate taxpayer.
New bands
In April 2020, new ULEV rates will be introduced, and the most tax efficient cars will be those with CO2 emissions below 50g/km. There will also be additional financial incentives for electric only cars.
There is a government grant given to vehicle dealerships and manufacturers to reduce the buying cost.
Furthermore you do not need to do anything if you want to buy one of these vehicles. The dealer will include the value of the grant in the vehicle’s price.
The grant will pay for 35% of the purchase price for these vehicles, up to a maximum of £3,500.
Likewise from 2020-21, new bandings are being introduced for full and hybrid electric cars. Fully electric (zero emissions) cars will attract an appropriate percentage of just 0%. This means that the tax benefit arising on an electric car costing say, £30,000 will be NIL.
For cars emitting CO2 of between 1 and 50g/km, the appropriate percentage will depend on the car’s electric range figure:
Hybrid cars registered after 06-April-20 - tax benefit percentage 2020-21
| Cars electric range | Percentage 24-25 | Percentage 25-26 | Percentage 26-27 | Percentage 27-28 |
|---|---|---|---|---|
| 130 miles + | 2% | 3% | 4% | 5% |
| 70-129 miles | 5% | 6% | 7% | 8% |
| 40-69 miles | 8% | 9% | 10% | 11% |
| 30-39 miles | 12% | 13% | 14% | 15% |
| Less than 30 miles | 14% | 15% | 16% | 17% |
ULEVs with CO2 emissions of between 50g-74g/km CO2 will be on a graduated scale from 15% to 19%. As is currently the case- diesel-only vehicles will continue to attract a further 4% surcharge as follows:
Non-electric cars, C02 emissions & tax benefit percentage 2024-25: Diesel add 4%
| C02 emissions | Percentage |
|---|---|
| Electric cars | 2% |
| 1 to 50 g/km | 14% |
| 51 to 54 g/km | 15% |
| 55 to 59g/km | 16% |
| 60 to 64 g/km | 17% |
| 65 to 69g/km | 18% |
| 75 g/km + | 20% |
| Plus | 1% per 5g/km |
| Up to a maximum | 37% |
The journey towards ‘greener’ driving has been, and continues to be, a rocky one. In 2014/15 a sub-130g/km petrol car was considered green enough to merit an 18% appropriate percentage. However, by 2020/21, the appropriate percentage on such a car will have risen to 30%. A sub-100g/km band car that was only subject to a 12% charge in 2014/15 will also have risen to 24% by 2020/21. But, clean air all-electric cars will finally plummet to 2% under the new company car tax incentives from April 2020.
Finally the incentives in the new tax bands are clearly designed to encourage ULEVs as a company car driver’s car of choice. So with around 1 million company car drivers in the UK, this benefit is likely to remain one of the most popular and potent perks of a job.
Thanks for reading this blog and hope you found it useful.
Contact us if you want to know more about company cars, taxable benefits & business. We can have a chat and a cup of (virtual or real) coffee, biscuit chat to see where we can help you.