Company car update

Recent initiatives as part of the 2014 Budget, announce changes in the company car tax rates each year for 5 years. This is primarily to discourage the use of employer provided cars. Those directors who own company cars should understand the changes that will affect the tax they pay. If you are buying a new car, contact the team at Figurit who can give you a personalised tax calculation using one of our bespoke calculators.
The strategy to encourage the use of lower emission cars as a means for being tax efficient and mindful of the environment appears to have taken a back seat as “benefit in kind” tax rates rise across the board in a government attempt to further discourage the use of all company vehicles.
For the background, read our related September article on how to reduce your tax bill, your fuel bill and your impact on the environment. It is expected that with the approach from the 2014 Budget that company car benefit tax rates will continue to rise every year until 2018-19.

How does this affect you and your tax?

A company car benefit charge for a full year is calculated by taking the list price of the car and multiplying it by the “appropriate percentage” set by HMRC. In 2014/15 there will be a 4% rise in the “appropriate percentage” for 51-75g CO2/km cars (considered low emission), which will continue to rise until it reaches 16% in 2018/19. Compare this to a 145g/Km car, which currently holds a 22% in 2014/15 and is expected to rise to 30% by 2018/19. Whilst cars with higher CO2 still have a higher percentage applied, it appears the gap is narrowing. For example, a 225 CO2/km car currently has a 35% rate applied and in 2018/19 this will rise by only 2% to 37%. For the full picture on rates visit Next Green Car.

Do you own a diesel company vehicle?

Currently diesel vehicles command a 3% higher percentage than petrol equivalents to factor in greater emissions. This rule is to be abolished in April 2016 to have one effective company car tax rate.

Hybrid and electric company cars

A reduced tax rate is applied for hybrid cars to reward for their lower CO2 emissions, typically giving a 5% reduction or more. In addition to this, battery electric cars currently have a zero tax rate % however from next year there will be a notional 5% applied as a starting rate. When selecting a company car a low emission, hybrid or electric is still the best from a tax perspective, as well as environmental of course.

The effect on business

There will be a review in 2016 relating to incentives for Ultra Low Carbon Vehicles taking into account developments in the market. These recent announcements and future predictions of company car rates is likely to have a minor negative impact on businesses who use electric cars and ultra-low emission company cars.

Private use repaid

Where an employee or director repays the company for their private usage of a company car, the rules vary so make sure you seek advice around this subject.

Summary

Company car and calculations of the “benefit in kind” tax rates isn’t always straight forward so if you need a hand, please contact the team at Figurit who will be able to personalise a calculation for you.