For many businesses, company cars are a necessity without which day-to-day work would be impossible.
They’re also a popular employee benefit and can be a significant incentive for staff to join your company, and to stay.
While the combination of high initial costs and tax charges can make company cars seem a particularly expensive perk, it’s possible to save in the long term by offering employees a cheaper, lower-emission car.
The tax rules for electric cars are also set to change in 2020/21, which will reduce the taxable amount on some electric cars to as low as 2% of the list price.
The year 2020 might sound far away but planning ahead of time could make all the difference when it comes to making a tax-efficient decision.
How are company cars taxed?
The taxable amount on company cars is calculated as a percentage of the list price.
This is the manufacturer’s valuation of the car when it’s new.
The percentage charged to tax – or the ‘appropriate percentage’ depends on the car’s level of carbon dioxide (CO₂) emissions.
This percentage increases every year. For 2018/19, the following percentages apply:
|
CO₂ emissions |
Appropriate percentage |
|
Less than 50g/km |
13% |
|
51g/km to 75g/km |
16% |
|
76g/km to 94g/km |
19% |
The appropriate percentage increases by 1% for each 5g/km rise in CO₂ emission above 94g/km, up to a maximum. The maximum percentage currently stands at 37%.
What’s changing for electric cars?
At the moment, electric cars with zero emissions are charged at the same percentage as cars with CO₂ emissions of 50g/km and below. This is 13% for 2018/19.
In 2020/21, new emission bands will be introduced for these cars.
The bands will be based on the car’s electric range, which is the maximum distance the car can travel without recharging the battery or using the combustion engine of the plug-in vehicle.
Under the new bands, the cars with the greatest range have the lowest appropriate percentage.
The rates for the new bands, which will apply for 2020/21, are as follows. The appropriate percentage is set at 2% for zero-emission cars.
|
CO₂ emissions (g/km) |
Electric range (miles) |
2020/21 |
|
1 – 50 |
More than 130 |
2% |
|
1 – 50 |
70 to 129 |
5% |
|
1 – 50 |
40 to 69 |
8% |
|
1 – 50 |
30 to 39 |
12% |
|
1 – 50 |
Less than 30 |
14% |
Choosing a company car
Deciding on which kind of car to use is often a case of balancing your practical requirements with the cost to your business.
The style of the car and the brand image that comes with it might be a priority for you. On the other hand, you might value how spacious it is, or the accessories it includes.
It can be a good idea to decide on your main requirements, and to consider which car will meet them at the lowest tax cost.
In general, tax rules tend to favour environmentally friendly options, with lower emissions resulting in a lower appropriate percentage.
For this reason, it’s well worth considering electric cars and other low-emission choices.
Get in touch
We can talk you through the upcoming changes to company car tax and help you make the right decision for your business.
We’re also happy to discuss any other aspect of providing benefits-in-kind. Get in touch with tracya@knightandcompany.co.uk or call us on 01628 631 056.