The Government is making huge changes to the taxation on company cars and your car choice can have a big impact on the amount of tax you pay. The taxation changes are being implemented by the Government as part of its commitment to reduce emissions by incentivising people to buy battery powered company cars through favourable taxation.
Cars with zero emissions will see their taxation rate dropping from 16% of list price in 2019/20 to 2% in 2020/21. Vehicles with emissions between 1g/km and 50g/km will be taxed at 16% in 2019/20 but in 2020/21 the rate for these vehicles will drop to between 2% and 14%, depending on the number of zero-emission miles the vehicle can travel.
The incentive is aimed at encouraging the purchase of vehicles that can travel further distances on battery power. In 2020/21 plug-in vehicles with a limited mileage range will be taxed at nearly the same rate as the lowest emitting petrol, diesel and hybrid vehicles. The taxation scale for vehicles emitting between 51g/km and 54g/km of CO2 is set at 15% for 2020/21 and goes up by 1% for every 5g/km. The maximum taxation rate is set at 37% for vehicles with 160g/km.
For the three years to 2020/21, the tax rates as a % of the original list price from new are set out below. (Note that a 4% supplement must be added to the appropriate percentage for any diesel vehicle that does not meet the Real Driving Emissions Step 2 (RDE2), up to a maximum of 37%).
|Electric Range (miles)||2018/19
|55-74||16||19||+1% for each 5g to 19% at 70g-74g|
|76-94||19||22||+1% for each 5g to 23% at 90g-94g|
|95+||+1 for each 5g to a maximum of 37% at 180g||+15 for each 5g to a maximum of 37% at 165g||+1% for each 5g to a maximum of 37% at 160g|
Some examples for 2019/20 and 2020/21 are set out below (using approximate list prices).
|Tesla Model S||£70,000||NIL||248||16||2||£11,200||£1,400|
Therefore, if you have a zero emissions vehicle with an original list price £100,000, the taxable benefit for 2019/20 will be £16,000 (being £100,000 at 16%). For a 40% tax payer the tax payable will be £6,400 (£16,000 at 40%).
For 2020/21 the taxable benefit will fall to £2,000 (being £100,000 at 2%). For a 40% tax payer the tax payable will be £800 (£2,000 at 40%). This gives a massive tax saving of £5,600 compared to 2019/20.
If you personally own a low CO2 emitting vehicle with higher range then think about getting the company to buy it from you. The personal tax payable on it will be low and running costs such as repairs, insurance and road tax can be deducted from your corporation tax bill. Best of all, the company can pay you the fair value of the car tax free!
Further information regarding the Car Benefit Charge can be found by clicking https://www.gov.uk/tax-company-benefits/tax-on-company-cars to link to the HMRC website
The S4B Team
S4B are a team of Chartered Accountants based in Maidenhead. We help our clients to implement the latest developments in taxes. Send our team an email at firstname.lastname@example.org or call 01628 623444 to see how we can help you.