Company car tax changes 2020/21

Since 6 April 2020, changes have been made to company car and fuel benefits. Use our guide to ensure you are using the most tax-efficient vehicles.

Contents

• Changes to car benefits: fuel provision
• New car benefit tables
  • Company car tax – Cars first registered before 6 April 2020
  • Company car tax – Cars first registered on or after 6 April 2020
• Hybrid cars
• Electric cars
• Electric and certain hybrid cars – grants
• Benefits in Kind (BiK) for company vans

Changes to car benefits: fuel provision

Since 6 April 2020, if a director or employee is provided with fuel for private purposes for use in a company car, the calculation to work out the taxable benefit has changed substantially.

The car fuel benefit multiplier has increased to £24,500. This means you take the normal benefit in kind percentage charge and multiply this by £24,500 to ascertain the taxable benefit.

For example:
The employee is provided with a new BMW 3 series Saloon 320d SE, which has 123/km CO2 emissions. The table below tells us that in 2020-21 the benefit in kind is 27% of the original manufacturers’ list price. However, if any private fuel is provided there is a further taxable benefit of:

27% * £24,500 = 6,615.

If the employee is taxable at 40%, then the income tax on the benefit is £2,646. (In addition, the company has to pay Class 1A NIC’s to HMRC of 13.8% * £6,615 = £913).
Overall a very expensive exercise, and unless a huge amount of private mileage is driven by an employee then it is unlikely this is an efficient benefit to provide.

New car tax benefit tables

From 6 April 2020, new company cars first registered from 6 April 2020 onwards are going to have their CO2 rating measured by reference to the worldwide harmonized light vehicle test procedure (WLTP).

For cars registered before 6 April 2020, the company car taxable benefit will continue to be based on the new European driving cycle (NEDC) emission figures.

Company car tax – Cars first registered before 6 April 2020

Company car tax – Cars first registered on or after 6 April 2020

Hybrid car tax benefits

Hybrid cars are cars that have both a petrol engine and an electric motor.

Hybrid company car taxable benefits changed from 6 April 2020 for those hybrid cars with CO2 emissions of not more than 50g/km.

For 2020/21, for these low emission hybrid company cars, the taxable benefit will be based on the number of miles that a hybrid car can do on battery power alone, before reverting to petrol.

The more miles that a hybrid car can do on battery power, the less the taxable benefit (see the car benefit tables).

Electric car tax benefits

Employees with a fully electric company car have no taxable benefit for the fiscal year 2020/21.

For instance: the Jaguar I Pace costs £70,000. It is a fully electric company car.

This is a massive drop!

However, this is only for one year. The taxable benefit for the next two fiscal years will be:

2021/22: 1%
2022/23: 2%

It plateaus out at 2% forever from 6 April 2022.

This makes such hybrids a very attractive benefit.

Employee Company Car: Example 1
Alan has a Volkswagen Passat Estate GTE hybrid company car; it was registered after 6 April 2020.

It cost his employer E Ltd £38,320.

Specifications:

• Its emissions are 36g/km.
• It combines a modern conventional petrol engine with an innovative electric motor.
• Its electric range is 34 miles.
• E Ltd received no government grant on this hybrid company car.
• E Ltd pays for all Alan’s private petrol.

Alan’s taxable benefit for 2020/21 will be:

For information concerning purchasing electric cars, read our article, Should your next business car be electric?

Electric and certain hybrid cars – grants

The government has reduced the grant for certain vehicles.

Electric vehicles or plug-in hybrid (so long as the CO2 emissions are below 50g/km and the vehicle has an electric range of at least 70 miles), still qualify for the grant.

This grant has been reduced to £3,000.

Grants for fully electric vans and motorbikes remain unchanged at up to £8,000 and £1,500 respectively.

Accordingly, fully electric cars such as: Nissan Leaf; Renault Zoe; BMW i3; will qualify for the grant of £3,000.

Benefits in Kind (BiK) for company vans

From 6 April 2020, the employees’ van benefit charge will increase to £3,490 (for 2019/20 the van benefit figure was £3,430).

• Note that home to work and back in a company van is not taxable private use
  From 6 April 2020 the van fuel benefit charge will increase to £666 (for 2019/20 the van fuel benefit figure was £655)
• From 6 April 2021 there will be a zero van benefit charge for employees who drive vans which produce zero carbon emissions
• For further information on the most tax efficient way to purchase and use company cars, contact Colin Burns or find out more about our tax services.

For further information on the most tax efficient way to purchase and use company cars, contact Colin Burns or find out more about our tax services.