Ultra-low emission vehicles
An ultra-low emission vehicle is generally defined as one that produces less than 75 grams of CO2 for every kilometre travelled. Such vehicles benefit from a number of tax advantages, although somewhat less so since 6 April this year.
The use of an all-electric company car, with zero emissions, was previously a tax-free benefit. But this has changed, with the benefit currently based on 5% of the car’s list price – the list price including the cost of the car’s battery, even if it is leased separately. Over the next four years, the percentage used will increase to 7%, 9%, 13% and then to 16% for 2019/20. However, electricity is not classed as a fuel, so there is no fuel benefit, even if you charge up your car’s battery at work.
When you charge up your battery at home you also benefit from a 5% VAT rate on the electricity used, compared with the standard 20% rate applied to fuel. From an employer’s viewpoint, the cost of a new electric car is effectively treated as a deductible business expense since it qualifies for a 100% first-year allowance. This allowance has just been extended to 31 March 2018.
Other ultra-low emission cars:
Cars with CO2 emissions up to 50g/km have the same benefit charge as an electric car. For example, a higher rate taxpayer with a Toyota Prius Plug-in will therefore see their tax cost go from £667 this year, up to £2,134 by 2019/20; still a significant saving when compared with having a more standard model. Where emissions are between 51 and 75g/km, the current charge is 9%. This is a 4% hike from last year, and the charge will rise to 19% by 2019/20 – a nearly fourfold increase from last year. For 2015/16, plug-in hybrids are rated at either 5% or 9% depending on CO2 emissions, with the 3% diesel surcharge not applicable to diesel hybrids.
As for electric cars, the 100% first-year allowance is available, although since 1 April 2015 the qualifying emissions limit has been reduced from 95 to 75g/km. You also benefit from the 5% VAT rate when recharging a hybrid at home.
HMRC publishes advisory fuel rates which, for example, can be used to reimburse employees who pay for fuel for their company cars. There is also a set mileage allowance when reimbursing the use of private cars for business travel. There is no reduction to these rates for a hybrid car.
Company provided zero-emission vans were previously a tax-free benefit, but the exemption is now being gradually withdrawn. For the current year, the charge is 20% of the £3,150 van benefit. This will rise in steps until 2020/21, when the full van benefit charge will apply. As for electric cars, there is no van fuel benefit, and zero-emission goods vehicles are eligible for the 100$ first-year allowance.
There are other advantages to low emission vehicles. Cars with CO2 emission rates up to 100g/km do not pay any vehicle excise duty, and the charge is not material until emissions exceed 120g/km. Electric and plug-in hybrid cars with emissions up to 75g/km can qualify for a grant of 35% off the car’s cost, subject to a grant cap of £5,000. For vans, the grant is 20%, with a cap of £8,000. Then there is the ultra-low emission zone to be introduced to central London from September 2020. Drivers of non-compliant vehicles wishing to enter the zone at any time of day will have to pay a daily charge.
Contact one of our team if you’d like to discuss this further.
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