If you have use of a company car for private travel you’ll have to pay tax for the privilege. Plus, there’s a further tax bill if the business pays for your fuel for private journeys. What’s changing with these tax charges in April 2020? Brona MacDougall finds out.
Cars and car fuel
Company cars are still popular despite sometimes being expensive in terms of tax. Conversely, employer-paid-for fuel has become less popular because of the reputation it gained for the high tax bills. However, because the environment is back in the headlines there are changes to the tax regime ahead which favour greener cars.
Back to zero
After a few years’ absence a zero tax charge makes a comeback in April 2020. It will apply to company cars registered:
• Before or after 6th April 2020, powered wholly by electricity and therefore producing zero emissions.
• On or after 6th April 2020 which have emissions up to 50g/km and can be driven solely on electrical power for 130 miles or more.
It was originally proposed that the rate for the latter group would be 2% of list price. That’s low, but the proposed 0% is better.
Also, from 6th April 2020 there will be lower rates for cars with up to 50g/km emissions, but which don’t meet the 130 miles by electrical power only benchmark that’s needed to qualify for the 0% tax. Interestingly, there will be low but different rates for these hybrid cars depending on whether they were registered before or after 6 April 2020. For example, a hybrid car registered before the April date which can travel between 40 and 69 miles on electricity alone will result in a taxable charge of 8% of list price, while cars registered later will be chargeable at 6%.
The disparity between pre and post 6th April registered cars continues throughout most of the new company car tax regime. Broadly, cars registered on or after 6 April will for 2020/21 be taxed on 2% less of list price than a comparable car registered earlier. For example, a driver of a company car registered pre 6th April 2020 which has emissions of between 100g/km and 104g/km will be taxed on 25% of its list price, whereas the rate for a driver of a later registered vehicle will be taxed on 23%. However, the difference will be eroded over the next two tax years as the lower rate will rise to match the higher.
Overall the new company car tax rates will be welcome news for anyone driving zero or very low emission cars. Furthermore, because the decreased taxable amounts also mean lower Class 1A NI charges, employers which provide the cars should also be pleased.
The separate tax charge where an employer pays for fuel for private journeys made in a company car usually makes it tax inefficient and should be avoided. However, where the new lower or 0% rates apply to a car from April 2020 they will also cover the provision of fuel. This could make providing fuel a low tax perk worth considering.
The main change will be the reintroduction of a zero tax on wholly electric cars and hybrids which have a long electric only range. There will also be lower rates for some hybrid cars. The new rates also apply to car fuel benefit which could make it a more worthwhile perk for 2020/21 and later years.