22nd August 2019

The Government has recently announced a 0% BIK tax rate for fully electric vehicles which applies from April 2020.

Background

On 1 September 2018, the government introduced a new method of calculating the carbon dioxide (CO2) emissions in respect of newly registered vehicles. The new World Harmonised Light Vehicle Testing Protocol (WLTP) replaced the New European Driving Cycle (NEDC) test which was previously used.

The NEDC test was purely laboratory based, whereas the WLTP test is more reflective of real-world driving conditions and gives a more precise CO2 figure. Government research has shown that on average over 50% of cars will see an increase in their vehicles CO2 emissions of between 10% and 20% when comparing WLTP to NEDC.

The changes in testing and subsequent increase in official emissions had the potential to increase the taxable value of company car benefits in kind (BIK) as their value is directly linked to the CO2 emissions of the vehicle. HMRC confirmed that the WLTP emissions figures would be used to calculate the BIK value from April 2020.

Consultation Response

HMRC’s response to its review of WLTP and vehicle taxes appeared to acknowledge the concerns of the Fleet Industry and as a result, created two new BIK tables for both company car vehicles registered prior to 6 April 2020 and those post 6 April 2020.

For cars first registered from 6 April 2020, most company car tax rates will be reduced by two percentage points (in contrast to the corresponding BIK table) meaning for a fully electric vehicle with zero emissions, company car drivers will be taxed at 0% and will not have any BIK charge.

The 0% rate will extend to vehicles registered post 6 April 2020 with emissions from 1-50g/km and a pure electric mile range of 130 miles or more. In addition, it will also apply to fully electric vehicles registered prior to 6 April 2020 (replacing the 2% rate which HMRC had previously set out).

These rates are set to increase by 1% each year until 2022/23, where the percentage rates will be brought back into line with the corresponding BIK table.

However, a notable difference is that company cars registered before 6 April 2020, with emissions from 1-50g/km and a pure electric mile range of 130 miles or more will still attract a 2% BIK rate in 2020/21 and this will remain a consistent rate until 2022/23.

The government has also retained the diesel surcharge of 4% where a diesel car emits over 75g/km and does not meet the RDE2 standard test. The RDE2 standard test was introduced by the Government to measure the amount of nitrogen oxide a car emits. A vehicle will be certified under the RDE2 standard test if it emits no more than 0.080g/km of NOx, and in these cases the diesel tax surcharge won’t apply to this vehicle.

The above adjustments demonstrate the governments initiatives in trying to encourage the use of ‘greener’ vehicles and illustrate the important role that businesses play in this transition.

What Employers Need to Do

It is important that both employers and employees are aware of the changes to the BIK rules and should make a practical assessment to determine the most appropriate fleet vehicles for both.

If you would like more information on any employment tax related matters, please contact: Lee Muter, Employment Taxes Partner, on 0191 243 6089 or at leemuter@unw.co.uk.

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