Changes in tax legislation first announced in summer 2019 mean that electric cars and some hybrid vehicles will soon be completely exempt from company car tax.
From April 2020, the UK will adopt the Worldwide Harmonised Light Vehicle Procedure – more commonly known as WLTP – to establish CO2 emissions for all new car registrations, meaning the taxable benefit for all company cars registered after 6th April will be based on these new emission figures.
The new test reflects what some are calling ‘real world’ driving conditions, which would see emission figures rise for most petrol and diesel vehicles. As a result, the Government will soon introduce a new set of benefit in kind rates, which will reduce by a 2% average for 2020/21.
Those drivers whose vehicles were registered before 6th April 2020 will see their company car tax bands frozen at the new 2020/21 rates, up to and including 2022/23.
To encourage greater buy-in of zero-emission company cars across UK fleets, the benefit in kind percentage for these vehicle types will drop significantly from 16% in 2019/20 to 0% in 2020/21, which is then followed by an incremental yearly increase to 1% in 2021/22 and 2% 2022/23.
With almost 50% of all new cars being obtained by businesses, the Government has clearly demonstrated its plan to reward those fleets that make the effort to go green.
A sample snapshot of the changes is detailed below, with a full round-up of the new benefit in kind rates available from your Client Manager.
| Vehicle CO2 emissions | Benefit in Kind rate for electric, petrol and RDE2 diesel vehicles | |||
| 2019-20 | 2020-21 | 2021-22 | 2022-23 | |
| 0 g/km | 16% | 0% | 1% | 2% |
| 1-50 g/km (electric range >130 miles) | 16% | 2% | 2% | 2% |
| 1-50 g/km (electric range 70-129 miles) | 16% | 5% | 5% | 5% |
| 1-50 g/km (electric range 40-69 miles) | 16% | 8% | 8% | 8% |
| 1-50 g/km (electric range 30-39 miles) | 16% | 12% | 12% | 12% |
| 1-50 g/km (electric range <30 miles) | 16% | 14% | 14% | 14% |
| 51-54 g/km | 19% | 15% | 15% | 15% |
| 55-59 g/km | 19% | 16% | 16% | 16% |
| 60-64 g/km | 19% | 17% | 17% | 17% |
| 65-69 g/km | 19% | 18% | 18% | 18% |
As a live example, a zero-emissions electric vehicle with a P11D value of £29,000 would attract a benefit in kind value of £4,640 in the current tax year.
The same vehicle, if registered after 6th April 2020, would have a benefit in kind value of £0 during 2020/21 and £290 in 2021/22.
The popularity of electric vehicles continued to rise during 2019, with the upcoming reforms providing an increasing incentive for UK fleets to make the switch. Yet making the move from petrol or diesel to a fully electric vehicle requires more than just a tax-saving benefit, with many companies needing to weigh up the practical considerations surrounding long-distance travel and where to charge your fleet.
There’s no doubt that the upcoming reforms will make the coming years some of the most transformative in automotive history. To understand more about how the changes to benefit in kind tax affects you, then contact your local Champion office today.
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