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28 April 2017

Are ultra low emission company cars still a tax efficient perk?

Until recently ultra low emission vehicles have enjoyed very low company car tax rates, making them an attractive perk for a company owner, but what’s the current position? 

The company car question crops up more than any other in advising owner managed businesses: ‘I’m getting a new car, should I put it through the company?’

We usually respond by asking for details of the intended car, the likely costs, and the expected mileage (business plus personal) and then crunch the numbers. However, with the tax charges on company cars becoming increasing punitive over the years, we usually know the answer before we even start: company cars are rarely tax efficient, and it is usually better to run the car personally and claim for business mileage at 45p per mile.

As a quick recap, company car tax is based on the list price of the vehicle when new, and a percentage based on its Co2 emissions. The resulting benefit in kind is subject to personal tax on the individual, and 13.8% Class 1A NIC on the company. The company will save tax on the costs of buying/leasing/running the car, but this is often outweighed by the personal tax and NIC.

However, until recently the same wasn’t true of ultra low emission vehicles (basically electric cars and hybrids), which initially enjoyed company car tax rates as low as 0%, increasing to a still attractive 7% until April 2017. In addition, ultra low emission vehicles (currently those emitting up to and including 75g/km, reducing to 50g/km from April 2018) enjoy a 100% first year capital allowance which further adds to the tax savings available. So electric cars represented a tax efficient perk.

But unfortunately, company car tax rates for cars emitting up to and including 50g/km are due to increase more rapidly over the next few years, as follows:


              Tax Year               % of list price  
              2017/18                         9% 
              2018/19                        13%  
              2019/20                        16% 

With the above rates, low emission vehicles will no longer be as tax efficient as they once were, and will be brought more into line with the rates applying to petrol and diesel cars.

However, there is some good news on the horizon, as last year’s Autumn Statement announced that some new rates will be introduced from April 2020 based on the electric range of ultra low emission vehicles.

For cars emitting 1-50 g/km (i.e., hybrids) these rates will be as follows:

               Range in miles            % of list price 
                      130+                              2%  
                    70-129                             5% 
                     40-69                              8% 
                     30-39                             12%  
                     <30                                14% 

While for zero emission cars (i.e., electric cars) the appropriate percentage will be 2%, regardless of its range.

These new rates will once again make ultra low emission vehicles (and particularly electric cars) a tax efficient perk for company owners.

For further advice on the tax on ultra low emission vehicles, please contact me.

Key Facts:

  1. Ultra low emission vehicles used to enjoy very low company car tax rates
  2. These rates are increasing from 9% in 2017/18 to 16% in 2019/20
  3. New lower rates will apply from April 2020 based on the vehicle’s electric range
  4. ULEVs also benefit from a 100% first year capital allowance for the company
  5. Electric cars and hybrids emitting up to 50g/km will be a tax efficient perk

 

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