Over the past 10 years or so, HMRC have made having a company car provided to you by your employer not a very attractive option.
You are taxed on how polluting the car is and the benefit in kind, and ultimately the tax you have to pay, is based on the C02 emission rates of the car.
The common drawback is that cars often create more personal tax liability than they save on the company’s corporation tax bill, meaning many employees choose to opt out of having one altogether.
It is usually be more cost-effective for employees to use their own car and claim back the mileage instead.
Time to go green?
There are quite significant tax exemptions on electric and low emission vehicles introduced from 6th April 2020.
From 6 April 2020 until 5 April 2021, full battery electric vehicles (BEVs) will pay no Benefit in Kind rate. This compares to 37% at the opposite end of the emissions scale.
This 0% rate also applies to company car drivers in pure electric vehicles registered prior to April 6, 2020. Additionally, the 0% rate will also apply to company cars registered after April 6, 2020, with emissions from 1-50g/km and which have an electric mile range of 130 miles or more. Both will increase to 1% in 2021/22 and 2% in 2022/23.
The table below shows the Benefit in Kind rates for vehicles with less than 50 g/km CO2 emissions before and after 6 April 2020 including Electric, Petrol and RDE2 Diesel.
|Vehicle CO2 emissions||BiK rate for cars registered before 6 April 2020||BiK rate for cars registered after 6 April 2020|
|1-50 g/km (electric range >130 miles)||16%||2%||2%||2%||n/a||0%||1%||2%|
|1-50 g/km (electric range 70-129 miles)||16%||5%||5%||5%||n/a||3%||4%||5%|
|1-50 g/km (electric range 40-69 miles)||16%||8%||8%||8%||n/a||6%||7%||8%|
|1-50 g/km (electric range 30-39 miles)||16%||12%||12%||12%||n/a||10%||11%||12%|
|1-50 g/km (electric range <30 miles)||16%||14%||14%||14%||n/a||12%||13%||14|
What are the benefits to the Company?
So what does the company get from HMRC? We summarise the current position in the table below:
|Description of car||What you can claim|
|New and unused, CO2 emissions are 50g/km or less (or car is electric)||First year allowances|
|New and unused, CO2 emissions are between 50g/km and 110g/km||Main rate allowances|
|Second hand, CO2 emissions are 110g/km or less (or car is electric)||Main rate allowances|
|New or second hand, CO2 emissions are above 110g/km||Special rate allowances|
What this means is that for a pure Electric car, or one with emissions of less than 50g/km, costing £25,000 you can claim 100% of the cost in the year of purchase and this is a Corporation Tax saving of £4,750. If you buy a £100,000 Tesla then you save £19,000!
However this relief only applies fully up until 1st April 2021, so in order to qualify you have to purchase the car before 31st March 2021.
From April 2021 only zero emissions cars will qualify for the 100% FYA.
Should you require any advice and guidance around this matter then please do not hesitate to get in contact with us.