Summary. In 2020, company car tax rules favor greener vehicles, with zero tax for electric cars and reduced rates for low-emission hybrids. These changes, benefiting both employees and employers, include lower Class 1A NI charges and apply to car fuel benefits, making eco-friendly company cars more attractive.
Company car tax rules are changing in 2020, so what do you need to know? Company cars remain a popular employee benefit. Both employers and employees need to consider the tax implications of company cars before making decisions. If you use a company car for private travel you will have to pay tax for the privilege. Plus, there are further tax consequences if the business pays for your fuel for private journeys.
Cars and car fuel
If any free or subsidised fuel is provided for private use in a company car, the employee pays income tax on this benefit. The value of the benefit depends on the fuel efficiency of the engine, not on how much fuel is provided. However, employer-paid-for fuel has become less popular because of the reputation it has gained for the high tax bills.
Changes to the tax regime in 2020 will favor greener cars.
Zero tax charge comeback
Under the new rules company car drivers choosing a wholly electric vehicle (EV) will pay no benefit-in-kind (BIK) tax in 2020/21 in hope of boosting sales of emissions-free cars. It will apply to company cars registered:
- before or after 6 April 2020, powered wholly by electricity and therefore producing zero emissions
- on or after 6 April 2020 which have emissions up to 50g/km and can be driven solely on electrical power for 130 miles or more.
- It was originally proposed that the rate for the latter group would be 2% of list price. That’s low, but the proposed 0% is better.
Reduced tax cars
From 6 April 2020 there will also be lower rates for cars with up to 50g/km emissions, but which don’t meet the 130 miles by electrical power required to qualify for the 0% tax.
The registration date of the car determines the rate for these hybrid cars. Hybrid cars capable of traveling 40 to 69 miles on electricity only, registered before 6 April 2020, will incur an 8% taxable charge of the list price, while those registered later will face a 6% charge.
Pre and post 6 April 2020
The disparity between pre and post 6 April registered cars is present throughout the new company car tax rules. For the most part, cars registered on or after 6 April will for 2020/21 be taxed on 2% less of list price than a similar car registered before this date. However, this gap will close after two years and the lower rate will increase to match the higher rate.
Overview
The above changes will be a welcomed benefit for anyone who is driving a zero or very low emission company car. The changes will also benefit the employer as the decreased taxable amounts mean lower Class 1A NI charges.
The biggest change will be the reintroduction of a zero tax. This will apply to wholly electric, zero emission cars and hybrids which have an electric mileage range of 130 miles. Some hybrid cars will also reap the benefits with lower rates. The new rates also apply to car fuel benefit which could make it a more worthwhile perk for 2020/21 and later years.
Thomas Nock Martin Chartered Accountants Brierley Hill
We specialise in business tax services, so if you need advice on your company car tax get in touch today on 01384 261300. We have company car tax rules covered and can help you save money when it comes to your benefit in kind.
