28 November 2019

Tax cuts for zero emissions company cars

From next April, an electric car might be the smart choice for your company vehicle, thanks to upcoming tax cuts to zero emissions cars.

In a move that supports their climate change policy, the Government is giving the one million drivers in the UK who use a company car an incentive to change their cars to a zero emissions model. An employee who chooses an electric zero emissions fleet model will pay no benefit in kind (BIK) tax for the year from 6 April 2020, rising to 1% BIK from April 2021 and 2% from the year after.

Company car tax paid by an employee is based on the vehicle’s UK list price (including the battery if it is leased separately), multiplied by the ‘appropriate percentage’ (which is based on the car’s electric range figure, CO2 and fuel type) to give the car’s taxable value, which is paid at the employee’s income tax rate.

So, from April 2020, a fully electric car costing £40,000 would have an appropriate percentage of 2%, making a tax benefit of £800. The resulting tax payable for a basic rate taxpayer (at 20% income tax) would be £160 a year.

Hybrids are not excluded from these benefits, but their ‘appropriate percentage” depends on the amount of CO2 emitted and the electric range figure. A hybrid car costing £40,000 that emitted less than 50g/km of CO2 and had a range of 130 miles or more would have the same percentage (2%) as the fully electric model above. For a range of between 70 and 129 miles, the figure would be 5%, 40-69 miles would be 8%, 30-39 miles 12% and less than 30 miles would be 14%. When compared to a 2-litre diesel car emitting 100g/km of CO2 and attracting 31% BIK, the benefits of a zero emissions car become obvious.

There is one sticking point with hybrid models, however: there are currently no hybrid models available in the UK which satisfy the emissions and range criteria for the 0% BIK rate.

Businesses are thanking the Government for committing to future figures, confirming percentages up to April 2022-23 and allowing businesses to make more informed decisions about how to make the transition to zero emission fleets.

If you’re considering your options, give our tax team a call on 0161 476 9000 or contact us here.

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