By Aaron Hemmington
Hawsons
WHERE an employer makes a car available to an employee for private use a benefit in kind arises. The current car benefit system calculates the taxable benefit as a percentage of the list price of a car, where the percentage is based on the car’s CO2 emissions.
As a car’s CO2 emissions rise, so does the percentage. This has created a tax system which favours cars with low CO2 emissions.
The percentage used to calculate car benefit is capped at 37 per cent, and currently, there is a three per cent supplement for diesel cars. This diesel supplement will increase to four per cent from April 2018 but then is intended to be abolished from April 2021; diesel hybrids are exceptions to the percentage supplement.
The car benefit charge percentages are set to increase across the board up to 5 April 2020. However, from 6 April 2020, the car benefit system is set to undergo significant changes and become even more attractive for zero or Ultra Low Emission Vehicles (ULEVs). For tax purposes a ULEV is defined as a car with emission of less than 75g/km.
These changes have been designed to provide greater incentives for employers to offer the use of ULEVs. Not only that, but as a method of reducing the effects of global warming and addressing the chronically poor air quality across the UK, the government would like to see every driver behind the wheel of a zero emission vehicle by 2040.
This new system separates purely electric cars apart from the hybrids. From April 2020, electric cars with zero emissions will attract a benefit charge of two per cent. However, the charge for hybrids with CO2 emissions of 1 to 50 g/km will be linked to the CO2 emissions and electric range of the vehicle as follows:
Car with CO2 emissions figure of 1 to 50: Car with electric range figure of 130 or more
– 2%; Car with electric range figure of 70 to 129 – 5%; Car with electric range figure of 40 to 69 – 8%; Car with electric range figure of 30 to 39 – 12%; Car with electric range figure of less than 30 – 14%
The charge for ULEV’s with emissions between 51g/km and 74g/km will be as follows:
Car with CO2 emissions figure of 51 to 54 – 15%; Car with CO2 emissions figure of 55 to 59
– 16%; Car with CO2 emissions figure of 60 to 64 – 17%; Car with CO2 emissions figure of 65 to 69 – 18%; Car with CO2 emissions figure of 70 to 74 – 19%
As an example, the fully electric BMW i3 illustrates the significant reduction of the benefit for ULEVs when the new system comes in April 2020.
The BMW i3 also has a Range Extender model (REX) which adds a 2.4 gallon petrol engine backup to charge the battery. This can extend its electric range up to a whopping 275 miles while only increasing its CO2 emissions to 13g/km, so even taxed as a hybrid and adding about £3,000 to the list price the BMW i3 REX would still attract a two per cent benefit charge from April 2020.
In the example above, the reduction in benefit from April 2020 would see a tax saving over £150 each month for higher rate tax payers. In addition, the 13.8 per cent NIC savings for employers shouldn’t be overlooked.
Furthermore, where a ULEV is purchased it is eligible for 100 per cent Enhanced Capital Allowances (ECAs), provided it is brand new, runs on electric or has CO2 emissions no higher than 50g/km, and provided the expenditure is incurred by 31 March 2021.
For more information and advice regarding these changes contact Aaron Hemmington at Hawsons Chartered Accountants on 01604 645600, email or visit www.hawsons.co.uk