Company car scheme: Tax increases to be aware of
Despite being a long-standing incentive offered to employers in a wide range of sectors and professions, the company car’s popularity has diminished somewhat. Partially due to a whole host of emerging alternative benefits, but also numerous rule changes as the Government encourages users to opt for more environmentally friendly, greener vehicles.
UNW Employment Taxes Partner Lee Muter discusses the upcoming tax increases both employers and employees need to be aware of to make mutually beneficial, informed decisions about the vehicles they purchase.
These days, a modern employee benefits package no longer centres around the company car, but competes with alternative incentives such as pension schemes, health insurance and even support for further training and qualifications. Adding this to the increasing rates of company car tax liability in recent years, it is little wonder that fewer and fewer people are choosing a company car.
Table 1a. Table 1b.
Source: Human Resource User eXperience (HRUX) – HRUX does DATA; Company Cars September 2017
The tables above, compiled by the Human Resource User eXperience (HRUX) during its research into company car scheme trends in 2017, emphasise the decline. Company car scheme tax is directly related to the amount and type of CO2 your vehicle emits, so employees using older vehicles with higher emission levels before the rules were introduced have seen a spike in the amount of company car tax they pay. Rates still apply regardless of a car’s age or how long you have been a part of the scheme.
|CO2 emissions (g/km)||BIK tax % 2016/17||BIK tax % 2017/18|
|0-50||7 (10)||9 (12)|
|51-75||11 (14)||13 (16)|
|76-94||15 (18)||17 (20)|
|95-99||16 (19)||18 (21)|
|100-104||17 (20)||19 (22)|
|Vehicle C02 emissions||2016-17||2017-18||2018-19||2019-20|
Despite the encouragement to choose ‘greener’ vehicles, BIK rates will continue to increase over the next few years but are set to change from 2020. The tax reduction, set at around 2%, for electric vehicles will coincide with a larger number and greater variety of electric models entering the market.
Furthermore, in what was seen as a major victory for fleet representative body ACFO, HMRC recently announced plans to introduce a new Advisory Electricity Rate (AER), which could potentially see employees in the company car scheme reimbursed 4p for every mile driven in a similar fashion to fuel rates.
All the above means both employers and employees have big decisions to make over the fleet vehicles they choose to use, and Lee Muter discusses the potential impact the tax changes could have going forward: “Motorists and employers who operate a car fleet and who are largely unaware of the future tax and NIC implications may have chosen a vehicle two years ago which will expose them to increasingly punitive rates of tax. As the government has not yet provided the rates further into the future when electric vehicles will be more common, drivers and employers are working blind in looking at their potential costs over a longer period.
“It appears that Company Car tax is another example of a stealth tax which needs to be carefully managed by employers offering them as a perk to employees. I recommend that employers include the tax and NIC efficiency of their current choice of vehicles when they next review their fleet.”
For further information on any employment tax related matters, you can contact Lee Muter at firstname.lastname@example.org or on 0191 243 6089.
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