Company car schemes: Tax changes to be aware of
Generally, each year we see a rise in the Benefit-in-Kind (BIK) CO2 rates for company cars and this often leads to tax hikes for employees.
What is the Issue?
From 1 September 2018 there has also been an adjustment to how actual CO2 emissions are calculated in respect of newly registered vehicles. The introduction of World harmonised Light vehicle Testing Protocol (WLTP) could potentially increase an employee’s tax liability further, as this test is said to give a more precise CO2 reading compared to the old New European Driving Cycle (NEDC) test and may therefore result in cars being less economically efficient due to higher CO2 readings.
What is the Impact?
HMRC have confirmed that the NEDC CO2 figures will continue to be used to determine the value of all company car benefits in kind until April 2020. Then from April 2020 CO2 data will be based on the WLTP emissions figures.
For any newly registered vehicles during the period 1 September 2018 until April 2020, the WLTP figure will be used but converted into NEDC using a formula known as CO2MPAS.
These changes also follow the introduction of the new diesel tax rates in April 2018, which led to diesel cars being taxed more heavily as the diesel tax supplement increased from 3% to 4%. However, if a diesel car is certified to meet the RDE2 standard test the diesel tax supplement won’t apply to this vehicle.
The above changes appear to show the government encouraging the use of ‘greener’ vehicles. BIK rates will continue to increase over the next few years but are set to change from 2020, for example, the tax rate will reduce from 16% in 2019/20 to 2% for electric vehicles.
What Employers Need to Do
It is important that both employers and employees are aware of the changes to the BIK rules for cars and employers should make a practical assessment to determine the most appropriate fleet vehicles for both.
HM Revenue and Customs (HMRC) has also published the latest advisory fuel rates, to apply from 1 December 2018. The advisory rates can be used by employers to reimburse employees for business mileage, and can also be used by employees who refund their employer for private mileage.
The new rates are as follows:
|Engine size||Petrol – amount per mile||LPG – amount per mile|
|1400cc or less||12 pence||8 pence|
|1401cc to 2000cc||15 pence||10 pence|
|Over 2000cc||22 pence||15 pence|
|Engine size||Diesel – amount per mile|
|1600cc or less||10 pence|
|1601cc to 2000cc||12 pence|
|Over 2000cc||14 pence|
Hybrid cars are treated as either petrol or diesel cars for this purpose.
Advisory Electricity Rate
The Advisory Electricity Rate for fully electric cars is 4 pence per mile.
HMRC review these rates on a quarterly basis on 1 March, 1 June, 1 September and 1 December.
For more information on any employment tax related matters please contact either: Lee Muter, Employment Taxes Partner, on 0191 243 6089 or at firstname.lastname@example.org; or Rebecca Kemp, Employment Taxes Consultant, on 0191 243 6070 or at email@example.com
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