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RobinWoodhouse, employment taxes principal at PSTAX, discusses the taxation of company cars The future is green
A t Autumn Budget 2017, the cars registered from April 2020 will be based on CO2 percentages obtained from the new EU standard Worldwide Harmonised Light Vehicles Test Procedure (WLTP), rather than the previous New European Driving Cycle (NEDC) test. The immediate impact of using WLTP, which the government thinks is more representative of ‘real world driving conditions’, will be to increase the ‘reported emissions’ of most vehicles above the previous NEDC amounts. This means the new emissions figures will increase the benefit in kind (BiK) income tax charge for most vehicles even though their actual CO2 emissions will remain the same. This is important because the government is committed to using company car BiK taxation as a means of incentivising employees to choose less- polluting vehicles under their employer’s company car schemes, thus helping government achieve its climate change and air quality objectives. Government statistics confirm that the average CO2 emissions for company cars are lower than for privately sourced cars, so it seems this policy has worked well in achieving environmental aims. In turn, many employers have enabled their employees to take zero- or low- emission leased vehicles as company cars under salary sacrifice arrangements, with the added advantage of low BiK tax (compared to pay as you earn and class 1 National Insurance contributions (NICs) on the salary sacrificed), and reduced class 1A NICs for the employers. The government’s overall aim is for a 25% ultra-low-emission central government vehicle fleet by 2022, rising to 100% by 2030, supporting its climate- change ambition for all new cars sold to be effectively zero-emission by 2040. government announced that the income tax charge on company
The government hopes to encourage similar trends in employers’ ‘grey’ vehicle fleets (i.e. employees’ own vehicles used for business journeys), especially in the public sector, by continuing to offer BiK tax breaks for zero- and low-emission company cars. At present the average grey fleet car is around eight years old and emits 16% more CO2 than its company car counterpart; so there is some way to go yet. ...the future for the company car really is green For these environmental tax incentives to continue working under WLTP, the government has had to introduce transitional measures to neutralise the immediate negative impact of the new CO2 ratings in 2020–21. Indeed, WLTP represents an opportunity for the government to adjust tax rates to create even stronger incentives to purchase or lease zero and ultra-low emission vehicles. The good news for employees and their employers is that these new measures, combined with rate changes already announced, make zero- and low-emission vehicles more attractive than ever for employees choosing salary-sacrifice leased cars. The government has therefore announced the following measures for the BiK taxation of company cars first registered on or after 6 April 2020: l CO2 appropriate percentages (except for vehicles with emissions over 170g/ km) will be reduced by 2 in 2020–21, but increasing by 1 in 2021–22 and again in 2022–23 l all zero-emission company cars (including those registered before 6 April 2020) will attract a reduced appropriate percentage of 0% in 2020–21 and 1% in 2021–22, before returning to the 2% in
2022–23 l apart from zero-emission models, the tax treatment for cars registered before 6 April 2020 will not change during 2020–21; and the rates will be frozen at the 2020–21 level for 2021–22 and 2022–23 l company cars with CO2 emissions of 170g/km and over will attract the maximum appropriate percentage of 37% during 2020–21, 2021–22 and 2022–23. The reductions are in addition to the existing changes for 2020–21 announced in Finance Act 2017, which introduced fifteen new bandings of which eleven are for ultra-low-emissions vehicles (sub-75g/ km). From 2020–21, the appropriate percentages for cars with CO2 emissions between 1 and 50 g/km will vary between 2% and 14%, depending on the number of zero-emission miles the vehicle can travel. This represents a massive reduction on the previous year in the case of vehicles with an electric range of more than forty miles, where the previous percentage was 16%. The potential tax and NICs savings from low- and zero-emission company cars offered via salary sacrifice arrangements are even more achievable now that the choice of low-emission models is widening and employees have more options within a broader price range. At the other end of the scale, however, it is becoming increasingly expensive for employees to drive higher emission company cars due to a combination of punitive taxation and the introduction of clean air zones in urban areas. Finally, a low-emissions car scheme enhances the employer’s green credentials and is a popular method of fulfilling corporate social responsibility targets. Given all of these benefits to employees and their employers, the future for the company car really is green. n
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| Professional in Payroll, Pensions and Reward |
Issue 53 | September 2019
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