Company Car Drivers Set to Pay 10 Times Less Tax in 2020 Shakedown
Drivers of company cars could end up saving as much as 90% by making the move to electric power
In the ever-changing world of company car taxation, those going green will soon get to make significant financial savings thanks to forthcoming changes to the rates charged.
Even the least polluting cars in the country pay tax charged on 16% of a vehicle’s value (the Benefit in Kind or BIK rate) but that’s set to drop to just 2% from April 2020, saving company car users hundreds of pounds in tax.
Plug-in hybrids will also benefit from the shake up, getting a modest reduction in taxation, but with the door left open for larger savings once longer-range vehicles arrive on the market.
Regular hybrids and traditional petrol or diesel powered cars won’t see any benefits however, with anything emitting more than 90g/km of CO2 actually seeing a small rise in taxation.
The result of the changes is that company car drivers could end up saving as much as 90% by making the move to electric power. A taxpayer driving a Nissan Qashqai 1.7 diesel auto with a BIK rate of 37% could be facing a company car tax bill of £2,395 from April 2020, a rate that’s doubled for higher income individuals. By switching to a similarly-priced, pure-electric Kia e-Niro, with its zero emissions, that same user could see their bill drop to just £146 for the year. That’s a saving of more than 93% that adds up to a cash saving of £6,747 over a typical three-year ownership period.
Those at the premium end of the market can make larger cash savings. Switching from an Audi Q7 to the new Audi e-tron will result in tax bills dropping from around £4,161 a year to as little as £286.
Even those confined to the city will see small cars benefit through the changes. While the driver of a Volkswagen e-up! will be presented with a tax bill of just £95 a year, company drivers behind the wheel of an up! beats will need to pay £568, more than five times as much.
Taxation gets more complex with plug-in hybrids, but all business drivers should see a modest drop in their annual bill. A BMW 530e PHEV user will benefit from a slight £30 drop in taxes, but the door has been left open for bigger savings on forthcoming plug-in hybrids.
Rather than base the company car tax on CO2 emissions alone, the Government has introduced five new bands for ultra low emission vehicles to distinguish between models with different plug-in hybrid technologies and improved battery range. Existing models that emit 50g/km of CO” or less will have a BIK rate drop from 16% to 14%, but models with an electric range of more than 30 miles will see more significant changes. Having a PHEV with an electric range of between 40 and 69 miles will attract an 8% BIK rate, while a model that can travel more than 70 miles will benefit from a rate of 5%. Any that can exceed 130 miles before an engine switches on will be treated to the same 2% rate as a zero-emission car.
This is all part of the Government’s somewhat mixed strategy to encourage a shift to less polluting vehicles, stating “ that “this will focus incentives on the very cleanest cars that allow most journeys to be zero emissions.”
The British Vehicle Rental and Leasing Association has reacted positively to the changes. “The BVRLA has welcomed the Chancellor’s decision to introduce a new, more granulated range of company car tax bandings for ultra-low emission cars from April 2020,” comments Gerry Keaney, BVRLA Chief Executive. “We are pleased that the government has recognised the importance of the company car market in supporting the take up of ultra-low emission vehicles. These new bandings will create a much greater incentive for employers and employees to choose the cleanest electric and hybrid cars.”
Company car tax is calculated not on the value of a company car, but on a percentage of its value (the Benefit in Kind rate) with more polluting cars attracting a higher percentage. Drivers then pay their normal income tax rate on that amount of the car.
For example, a £20,000 petrol car emitting 106g/km of CO2 will attract a BIK rate of 26%. An end-user will, therefore, pay tax on 26% of the car’s value, or £5,200. That tax bill will be at the user’s income tax rate, which for most people is 20%, meaning there’ll be a tax bill of 20% of £5,200, or £1,040.