For a long time, company cars have been a brilliant tool to reward staff on top of their standard salary. Of course, the government levies taxes on these cars. This is known as a benefit-in-kind (BIK).
This tax is the same whether it is bought outright, financed or leased by your firm. It is based on 4 element:
1. It's P11D value (the car's list price before any discounts)
2. The proportion you pay on your P11D value is based on the environmental impact of your vehicle, its CO2 emissions. This promotes greener cars.
3. The type of fuel the car uses also impacts the proportion you pay. Diesel cars are taxed a higher rate.
4. Finally, your personal tax rate.
In 2020, changes are happening to company car tax which could save you money but as long as you choose the right vehicle.
From 2020, company car tax on electric and (some) hybrid models will be heavily reduced. Battery powered cars would therefore be a cheap choice for business users. So much so that the difference in tax between a £40,000 diesel car and an electric car of the same price could be £5000.
Electric and hybrid cars
Entirely electric cars will gain the biggest company car tax cut next year.
At the moment, fully electric cars have a BIK rate of 16% and will drop drastically to 2% for 2020/2021.
Some plug-in hybrids will also see a tax cut. These cars are a combination of a conventional engine with batteries that can be charged up. Hybrid cars with a range of under 30 miles will face a 14% BIK rate. But for those with a range of over 40 miles on purely electric power, there is potential for the tax rate to be lower than 10% and even as low as 2% (for a 130 mile range).
CO2 emission figures
So getting a company car before April 2020 could save you money for several years as changes to the way that CO2 emissions are calculated will probably see tax rates go up for new cars that are sold after that date.
This increase is because of new measures in place to undertake standard laboratory tests for every new type of car. In previous years this test had produced inaccurate results which were lower than real-world driving. The test has now been changed to represent real driving, a procedure now known as WLTP.
Changes in how CO2 is measured on new cars comes into affect in April 2020, tax rates likely increasing with it. By buying a car before April 2020, your tax will be based on the older and reduced rate throughout its life.
There are now several cars alongside the Tesla range that can realistically travel for more than 200 miles on a single charge. The availability of fast chargers also mean that a 30 minute stop at services will give a decent range boost of more than 100 miles.
This is not to say you should write off a petrol engine car. These are becoming increasingly cheap and efficient to run, helping to keep company car tax nice and low.
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If you feel your business would benefit from bespoke financial guidance and advice, please do get in touch with Catherine on 01423 431889 or email her at catherine@bctaccountants.co.uk for your FREE initial one-hour consultation.