Significant changes to the tax rules governing zero emissions company cars will take effect from 6 April 2020, potentially making an electric car a more attractive option.
The tax rules for calculating the taxable benefit arising on a car are not changing – this will still be calculated (broadly) using the car’s full manufacturer’s published UK list price multiplied by the ‘appropriate percentage’, which can be found by reference to the car’s CO2 emissions level. This calculation gives the taxable value of the car benefit. The employee pays income tax on the final figure at his appropriate tax rate (e.g. 20% for basic rate taxpayers; 40% for higher rate taxpayers). This formula means that in general terms, the lower the C02 emissions of the car, the lower the resulting tax charge will be.
For 2019-20, the appropriate percentage for cars (whether fully electric or not) is 16% for those emitting 50g/km CO2 or below, and 19% for those emitting CO2 of between 51 and 75g/km. This means that the taxable benefit arising on a zero-emissions car costing, say £30,000 is £4,800, with tax payable of £960 for a basic rate taxpayer.
From April 2020, new ULEV rates will take effect for cars with CO2 emissions below 50g/km the most tax-efficient for company car drivers. In summary, five new bandings are being introduced for full and/or part electric cars (hybrids). Fully electric (zero emissions) cars will attract an appropriate percentage of just 2%. This means that the tax benefit arising on an electric car costing say, £30,000 will be just £600. The resulting tax payable by a basic rate taxpayer will be £120 a year.
For cars emitting CO2 of between 1 and 50g/km, the appropriate percentage will depend on the car’s electric range figure:
- 130 miles or more – 2%
- 70 – 129 miles – 5%
- 40-69 miles – 8%
- 30-39 miles – 12%
- Less than 30 miles -14%
ULEVs with CO2 emissions of between 50g-74g/km CO2 will be on a graduated scale from 15% to 19% (as is currently the case, diesel-only vehicles will continue to attract a further 4% surcharge) as follows:
- 51 to 54g/km 15%
- 55 to 59g/km 16%
- 60 to 64g/km 17%
- 65 to 69g/km 18%
- 70 to 74g/km 19%
- 75 or more 20%
- Plus 1% per 5g/km
- Up to a maximum 37%
Clean air all-electric cars will plummet to 2% under the new company car tax incentives from April 2020 – the incentives in the new tax bands are clearly designed to encourage ULEVs as a company car driver’s car of choice.