Company Car Tax

Company Car Tax

For many years the government’s company car tax policy has been designed around lower tax for lower emission cars.

This policy continues and the 2018 Finance Act has confirmed the rates for the next few years. Therefore, the decision on what company car you should choose can be made knowing the tax rates that will apply.

Under the current tax system, employees (and directors) pay tax on the Benefit in Kind (BIK) for the use of the car provided by the company. The BIK charge is calculated by applying a percentage to the official value of the car (called the ‘P11D value’, which is usually the manufacturers list price of the car when new). The percentage that applies is determined by the car’s CO2 emissions – the higher the CO2 emissions, the higher the percentage rate. The BIK is then taxed at the employees’ appropriate personal tax rate – usually collected through the PAYE system.

Company car tax (BIK rates 2018 – 2021)

Current company car BIK rates start at 19% for petrol and RDE2 compliant diesel cars, the rate increasing in up to 1% increments as CO2 bands rise, up to a maximum of 37%. From 06 April 2018, to account for the greater level of NOx emissions, a 4% diesel car tax supplement is payable which applies for non-RDE2 compliant diesels – the vast majority of current diesel models.

All hybrid cars receive a reduced BIK rate as a result of their lower CO2 emissions, which tends to reduce their BIK rates by at least 2%, and often more. Note that for diesel hybrids, the 4% diesel surcharge does not apply, since they are not classed as diesel-powered cars, but alternatively fuelled vehicles for tax purposes.

Electric vehicles are also rewarded with lower BIK rates with battery electric cars BIK-rated at 13% for FY 2018/19, increasing to 16% during 2019/20 and then reducing to only 2% for FY 2020/21. From April 2018, plug-in hybrids with CO2 emissions up to 75 g/km are BIK-rated at 13% to 16% (depending on CO2 emissions), with rates increasing by 3% for FY 2019/20.

From April 2020, new BIK bands come into force for plug-in models with CO2 emissions of 1-50 g/km, with the new BIK levels dependent on the official electric-only range in miles. Those with a range in excess of 130 miles are classed as pure-electric models for the purposes of BIK ratings (at 2%), while those plug-in models with a range of less than 30 miles will be rated at 14%.

The table below shows how the percentage BIK rates vary with vehicle CO2 and electric-only range. The table represents petrol, diesel and electric related Company Car Tax (BIK rates for 2018-2021).

    FY 2018-19
%BIK Rate
FY 2019-20
%BIK Rate
FY 2020-21
%BIK Rate
Vehicle
CO2
(g/km)
Electric
range
(miles)
Petrol,
Electric,
RDE2
Diesel
Petrol,
Electric,
RDE2
Diesel
Petrol,
Electric,
RDE2
Diesel*
0 13 16 2
1-50 130+ 13 16 2
1-50 70-129 13 16 5
1-50 40-69 13 16 8
1-50 30-39 13 16 12
1-50 <30 13 16 14
51-54 16 19 15
55-59 16 19 16
60-64 16 19 17
65-69 16 19 18
70-74 16 19 19
75 16 19 20
76-79 19 22 20
80-84 19 22 21
85-89 19 22 22
90-94 19 22 23
95-99 20 23 24
100-104 21 24 25
105-109 22 25 26
110-114 23 26 27
115-119 24 27 28
120-124 25 28 29
125-129 26 29 30
130-134 27 30 31
135-139 28 31 32
140-144 29 32 33
145-149 30 33 34
150-154 31 34 35
155-159 32 35 36
160-164 33 36 37
165-169 34 37 37
170-174 35 37 37
175-179 36 37 37
180-184 37 37 37
185+ 37 37 37

Diesel Vehicles

From April 2018, HM Treasury levies a 4% diesel supplement over petrol models to account for greater levels of NOx emissions for the majority of current diesel cars. The supplement applies to diesel cars not compliant with the Real Driving Emissions Step 2 (RDE2) test, which confirms that real-world emissions are close to, or better than, the current Euro 6 emissions standards for NOx.

As of the start of 2018, no diesel models have yet passed the RDE2 test as the procedure itself is under final review. However, new diesel models are expected to be submitted to the test from April 2018.

Company Vans

Zero emission vans – existing legislation restricts the level of the van benefit charge to 20% of the normal van charge (see below).

Other Vans – the value of the BIK for non-incidental  private use of a van is £3,350 from 6 April 2018. If the private use of a company van is incidental, no BIK charge applies. We would advise that a van policy is put in place to evidence the non-incidental private use position if the company is relying on this exemption.

Planning Points

The Electric option! – What the above table shows is that electric cars from 20-21 onwards, especially the longer range models, have a significant reduction in their BIK charges.  The Government hoping of course that this will push more people towards the electric car option. Check out the web for a range of electric cars – and for that something special there is always the Tesla range!

Directors and their family – the company car option for the low emission cars may still be advisable. Its certainly an option for the owner managed business owner who may want to provide their newly qualified children with a small car. The Insurance costs for the new driver is usually horrendous but if the company can meet this cost, the director suffering the BIK charge on a small low emission car may be worthwhile – each case is different so please talk to us for further advice.

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Article by Paul Dell
Partner