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Company Car Tax in 2020
21 Jan 2020
Company Car Tax in 2020 is geared towards rewarding drivers of lower emission vehicles. In this guest post, Patrick Tigwell, a partner with local Chartered Accountancy firm Thomas Westcott, looks at the current position faced by directors over the use of company cars in their business. He then examines the changes to the company car regime coming in on 6 April 2020, examines whether electric and/or hybrid vehicles are the future for company cars and finally whether pure diesel or petrol vehicles will still have their place.
Company Car Tax in 2020
If a company provides a vehicle for an employee or director (however it is financed, for example leasing or buying outright) which includes private use, then there is a benefit in kind assessed on the individual. A further benefit arises if the company provides fuel for private journeys. The benefits are normally taxed through the employee’s or director’s PAYE code. The company also pay Class 1A National Insurance on the benefit at a rate of 13.8%.How much would the benefit be on my company car now?
Company cars used to be a great perk and, as long as you did over 2,500 business miles the benefit was reasonable. Unfortunately, the Government has long since changed the way benefits are calculated in line with its Green agenda. The current system is based on the emissions of CO2 expressed as grammes per kilometer. HMRC produce charts year by year that show the % of list price for each band of emissions – an example: A Mercedes C Class saloon, a C220d AMG Line, list price of £39,730 This vehicle emits 114 g/km of CO2 and for 2019/20 HMRC have listed this as 26% of the list price. Hence the taxable benefit would be £10,330 which as a higher rate tax payer would mean a tax bill of £4,132. The company would also have an NI bill of £1,425. Some points to note: • The % is worked out on the list price when new, not the used car value you may have paid! • For the same level of emissions, the Government has been steadily increasing the % of list price – back in 2013/14 a car with these emissions of 114 g/km would have attracted a rate of 17% • Full electric or hybrid vehicles do better than pure petrol or diesel vehicles under the current regime but would still attract a rate of 16%Okay, so what’s changing on 6 April?
In a major boost for electric and hybrid cars, the Government has announced it will slash the % rates for these vehicles: For a full electric car, for example the new Mercedes-Benz EQC, the benefit would be slashed from 16% to 0% rising to 1% in 2021 and 2% in 2022. What it means then, is that from 6 April the benefit on a £64k EQC would be nil! There is good news for owners of hybrids too; from 6 April the benefit will depend on the range of the vehicle under battery power alone – the more miles it can achieve, the lower the % figure for the benefit. An example: A Mercedes-Benz A Class Hatchback A250e plug in hybrid (to be release in Spring 2020) This vehicle emits 32g/km of CO2 - currently with those emissions the benefit % is 16%; from 6 April, as this vehicle has a battery range of 40 miles, the benefit reduces to 8%So, full electric or hybrid vehicles are the way forward for company cars then?
Clearly this is what the Government wants judging by the amount it has reduced the rates for these vehicles. It is also certainly true that if you think of the total cost of a company car (with say, the leasing charge added to the tax on the benefit), the zero benefit could offset the higher leasing rates so you could be driving a more expensive vehicle for the same combined price of a lesser vehicle! Some concerns I have come across during my conversations about electric vehicles include:
- ‘Range anxiety’ – I have come across this as a phrase multiple times! This describes the fear of running out of charge without the infrastructure to recharge effectively and in a timely way. Most electric vehicles come with enhanced navigation which plans charge stops into your drive if necessary.
- The lack of infrastructure – closely linked to the above; the numbers of charging points would need to increase dramatically and the National Grid made more robust to cope with the increased demand. Infrastructure is improving all of the time. Recent data from motorway.co.uk shows that Exeter has seen a 150% increase in ultra-low emission vehicles in the past year. Ownership demand will drive infrastructure changes. At the moment the government is also offering £500 contribution to home charge sockets.
- Battery health – as we know from our phones, battery life degrades over time and from multiple re-charging. The ranges quoted may look good for a brand new battery but however there are concerns that this may reduce over time. Most current batteries are forecasted to survive for around eight years, however this is new technology, so this is likely to improve.
- There is a balance to be struck between the value of low-emission vehicles and the environmental cost of producing them and managing their disposal. This is a part of Mercedes-Benz' innovation strategy. In September 2019 the brand announced that the next generation of EQ vehicles would be produced using 100% renewable energy.
What about pure diesels or petrols?
Even though the Government has removed the 4% surcharge for diesels that meet the Euro 6 standard the ‘direction of travel’ (pun intended) is very much one way with higher and higher benefit rates and will continue to be so. As we get nearer to an outright ban on the production of these vehicles there might be some great used car deals. Given the list price rather than used price and the high emissions benefit rates, if you are in this situation, you may be better off keeping the vehicle outside of the company and claiming the mileage allowance.Conclusion – what’s the advice?
Electric – great benefit rates so if your driving pattern fits within a pattern of regular home/office charging, go electric, perhaps on a leasing deal so you don’t have to worry about battery replacement. Hybrid – no ‘range anxiety’ here so a great balance of practicality versus benefit cost Petrol/Diesel – potentially a great used buy and still the vast majority of vehicles on the road, just keep out of the company car regime and claim the mileage allowance Of course, the main advice is to speak to your accountant before acting! Company Car Tax in 2020 is a complex area and I would be very happy to chat through the options in more detail.