In the Midst of Coronavirus chaos, the end of the tax year has been and gone. For electric car owners, the 6th April represents a significant change in the tax benefits available. The latest measures may offer an exciting new opportunity for around a million people driving company cars in the UK. These changes will affect tax on so-called ‘benefit in kind’ payable as part of employee payroll taxation. Specifically, those who have the right to use their company for both business and personal use will see the tax on this benefit change significantly.
|Company Car List price||£30,000|
|Multiply by the tax rate(120-124g/Km band)||28%|
|Multiple by your personal tax rate||40%|
|Annual Tax payment||£3,360|
Until now, tax on company cars has revolved around the emissions of the vehicle in question, CO2 per km. A percentage tax rate is applied using the emissions banding, the price of the car and the personal tax rate of the employee. For example, if you owned a BMW 3 Series with a cost price of £30,000 and an emissions rate of 124g/Km CO2 for a higher rate tax payer, the calculation would look like this:
Each month, you would see an additional £300 deducted from you pay. This is a relatively low example with the average fees for executive drivers over £600 per month: £7,200 per year!
As expected, the new change in taxation for the 2021 fiscal year will create even more onerous charges on cars which are not low or zero emissions. However, they have also lowered the tax on these environmentally friendly alternatives dramatically. Taxation on zero emission vehicles was 16% but has been eradicated completely as of 6th April.
The UK government has publicly pledged to be net zero emissions by 2050 and this latest step is a sign of the value they place in the ‘company car market supporting the transition to zero emission technology’. The new tax scheme aims to provide ‘clarity of future appropriate percentages’ and allows businesses to gain ‘the ability to make more informed decisions about how they make the transition to zero emission fleets.”
At a government level, huge steps have been taken to achieve their target but the biggest impact we have seen is by the commercial sector. The trend for companies to go green has been overwhelming as they recognise consumer demand for environmentally friendly products and corporations that support a cleaner future. Many companies see the transformation of their vehicle fleets as the perfect opportunity to implement these policies and we believe company car users should welcome these changes with open arms.
That said, if your employer has not taken the steps to overhaul their fleet, then maybe you should consider taking the step yourself. To fund the 0% tax rates on zero emission vehicles, the government has increased taxation on high emissions cars. Coupled with increasing road taxes, fuel excise duties and a range of other environmentally fueled taxation packages, driving a high emission company car could potentially have a major impact on your wallet. Most major car manufacturers now have hybrid or fully electric vehicles available as part of their range. Your employer may have a partnership with a specific dealership but this should not hamper the options available to you when it comes to going electric. To help you visualise this, we have calculated the effective tax on a petrol vehicle and an electric vehicle in Central London:
|Benefit in Kind||£600||£0|
|Low Emissions Zone Charging||£720||£0|
|Vehicle Excise Fund||£180||£0|
|Fuel1,000 miles driven on average costs||£410||£20|
|Average Monthly Cost||£2,255||£20|
Obviously this is an acute example as vehicle charges in London are higher than the rest of the UK. However, if a potential £2,235 extra spending power per month is not enough to persuade you, we don’t know what would.
There are still many grants available on the purchase of electric vehicles and installation of charging infrastructure, such as electric vehicle or plug-in hybrid chargepoints. Before even considering the tax implications, the switch to lower emissions is an economically sound decision already for both domestic consumers and businesses. Moreover, many of the stumbling points or question over electric cars have been overcome in recent years. We think this is the perfect time to take the plunge!
If you are thinking of changing your company car or you are an employer looking to transition your fleet, please get in touch. A member of our technical team would be happy to discuss this in more detail and answer any questions that you have. Call us on 0141 280 8890 or drop us an email at [email protected].
We also have a variety of platforms available with extensive information about electric vehicles (brite-ev.com), EV chargepoints (evchargepoints.com) and EV accessories (briteaccessories.com).
You can also stay up to date with the latest news on the company car market by joining the company car driver group on linkedin at https://www.linkedin.com/groups/13846735/ or facebook at https://www.facebook.com/groups/515304972496874/
Author – Iain McComish of evchargepoints.com
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