Company Car Tax Changes Due on 6th April

Company Car Tax Changes Due on 6th April

As more and more drivers become green conscious, the number of electric and low emission vehicles hitting our roads is increasing. And it’s not just individuals getting in on the action - companies are also looking for ways to switch to part of fully electric fleets. To that end, government bodies are stepping in to give them a hand with new company car tax changes likely to take effect on the 6th of April 2020.

But what does this mean for company directors and employees? And just what will you need to do if you drive a company car and these changes take effect on the 6th of April 2020?

In this guide, we’ll cover essentials to know about the upcoming changes to company car tax in 2020, as well also tell you where to go to figure your new company car tax rates and how to calculate your tax owing.

When it comes to different kinds of taxes, like BIK, which company car tax falls under, it’s always good to understand what it is you're paying for. So we’ll start by noting what BIK stands for and what it is.

What is BIK Tax?

As an employee or company director, you may receive certain benefits from your company such as accommodation, a loan or a company car, etc. While some of these benefits are tax-free, you’ll need to pay taxes for using certain things like housing or a vehicle provided by your employer (if you’ve chosen to have these). The amount of tax, otherwise known as benefit-in-kind or BIK tax, that you end up paying on these ‘company perks’ will depend on a few different factors, including the value of the benefit.

Company car tax

So, if your employer has given you a car, one that you can use for both work and personal use, then in the eyes of HMRC that vehicle is deemed a ‘company car’ and, as such, a ‘taxable perk’.

When it comes to company cars, the amount of benefit-in-kind tax you’ll have to pay will depend on the list price of the vehicle. But it will also depend on the car’s CO2 emissions (in grams per kilometre), the type of fuel it uses as well as your income tax rate or band.

Read more: What Would Incentivise More Drivers to go Green

Reducing your company car tax

By this point, you’re probably wondering if there are ways to reduce your BIK payments or company car tax. Only using the vehicle part-time or making contributions to the fees are a couple of ways of doing so. However, there’s also the option of choosing an electric (EV) or low-emission vehicle as your company car. And that last choice is significant, given the changes that HMRC has in store for the 2020 tax year, changes that could have a substantial effect on the amount of company car tax you’ll need to pay.

Electric Car Savings

Company car tax changes taking effect on the 6th of April 2020

From the 6th of April, the beginning of the 2020 tax year, the way in which BIK tax is calculated will be modified. That modification is designed to favour vehicles with lower or net-zero CO2 emissions, thus rewarding drivers who are making more of an effort to ‘go green’. Simply put, this means that cars with lower CO2 emissions will be taxed at a much lower rate than higher emitting vehicles. For drivers of vehicles that land in the 1-50 g/km of CO2 bracket, that means a drop in tax rate from 16% to 2% and, in turn - a significant saving on their BIK payment!

These changes have been ‘in the works’ for a few years now. However, in July 2019 the Treasury decided to review previously published BIK rate tables for 2020/2021. Instead, they created two new tables: one for company cars registered before the 6th of April 2020 and the other for those registered after that date.

Read more: Electric Cars and Hybrids - Ask an Expert

Why the last-minute alteration? Well, HMRC wanted to account for the difference in cars that were tested under the old NEDC (New European Driving Cycle) requirements from that of vehicles assessed by the new, more rigorous WLTP (Worldwide Harmonised Light Vehicle Test Procedure) criteria. From 2023/24, the two tables will be merged as rates align following the implementation of WLTP.

The decision was also made to introduce a zero percent (that’s right, 0%!) BIK rate for purely electric vehicles. That applies to cars registered both before the 6th of April 2020 and after. For EVs registered from 2020, their BIK rate will be 0% for one tax year, then will rise to 1% in 2021/22 and then to 2% in 2022/23.

Company car tax - how to find out what you need to pay

To figure out how much tax you’ll need to pay, you’ll first need to find out:

  • Your car’s P11D value - or, the list price of your vehicle. Don’t worry; your employer should have this value handy for you among their records. If you’re a company director, then your dealership can provide you with this value.

  • CO2 emissions of the car - that is, the official CO2 emissions rate of your vehicle. You’ll be able to find this out by going to the HMRC website where you can fill in the details of your car to obtain the correct figure.

  • Car tax band - Once you know the CO2 emissions of your vehicle, you’ll be able to see where your vehicle falls among the company car tax bands.

Here's a table to help you figure out what BIK rate you are eligible for on cars registered from 6th April 2020.

Cars registered from 6th April 2020:

CO2 (g/km)Electric Range (Miles)2020-21 (%)2021-22 (%)2022-23 (%)
0 N/A 0 1 2
1-50 >130 0 1 2
1-50 70-129 3 4 5
1-50 40-69 6 7 8
1-50 30-39 10 11 12
1-50 <30 12 13 14
51-54   13 14 15
55-59   14 15 16
60-64   15 16 17
65-69   16 17 18
70-74   17 18 19
75-79   18 19 20
80-84   19 20 21
85-89   20 21 22
90-94   21 22 23
95-99   22 23 24
100-104   23 24 25
105-109   24 25 26
110-114   25 26 27
115-119   26 27 28
120-124   27 28 29
125-129   28 29 30
130-134   29 30 31
135-139   30 31 32
140-144   31 32 33
145-149   32 33 34
150-154   33 34 35
155-159   34 35 36
160-164   35 36 37
165-169   36 37 37
170+   37 37 37

 

Calculating your company car tax

Now that you know which car tax band your vehicle falls into, you can find out the taxable value of your car by multiplying the P11D value of your car by the CO2 tax rate from the table. Once you’ve got this figure, you then multiply it by your income tax rate (20%, 40% or 50%) to get the amount of BIK tax you need to pay. While you’re likely to find a company car tax calculator with a simple online search, it all really comes down to this simple equation:

P11d Value X Benefit-in-Kind % X Personal Tax Rate = Yearly BiK Tax

£25000 X 17% X 20% = £850

Going forward with the new car tax

Now you know what company car tax changes are, and how you can find out and calculate what you’ll need to pay, you may find it worth switching to an EV or more low emission vehicle.

Read more: Top 5 Electric Cars for Businesses

At Rivervale, we offer various EV model leases for both personal and commercial use, so give us a call if you’d like to find out more about making to switch to going green. Alternatively, request a callback at a time that suits you.

 

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