The company car is a popular incentive that employers have offered their employees for many years.
However, as a benefit-in-kind, there are tax implications associated with company cars – and also a number of opportunities for employers to save tax and National Insurance by utilising low emission vehicles.
What is the background?
The tax rules for company cars are designed to encourage the use of low emission vehicles.
So exactly what are the tax benefits of low emission cars and is now the time to consider the move to zero or low-emission vehicles?
What is the issue?
There are a number of opportunities for employers to save tax and National Insurance (NIC) by switching to cars which have relatively low emissions (measured with reference to their carbon dioxide levels).
For those who are currently driving in either petrol or diesel only vehicles, the car benefit tax rules are especially penal, with benefit in kind rates averaging 25% of original list price compared with the lower tax rates on offer for pure electric vehicles (1%) and hybrid vehicles (those using both electric and either petrol or diesel) which can be less than 14% depending on the amount they can travel on the electric part of their engine.
For example, a VW Passat GTE with CO2 levels of 32 g/km and an electric only range of between 30 and 39 miles would have a benefit rate of 12% in 2021-22, equating to a taxable benefit of approximately £4,300.
In addition, as the tax and NIC rates climb for the provision of fuel for private journeys, there are useful incentives both in looking at reimbursement of the costs of private fuel or to move to vehicles which require charging rather than filling up at the pump.
What do employers need to consider?
Employers need to consider the following:
- What are the average and actual emissions of their current fleet;
- What is the tax and NIC cost in providing employees with their current vehicles;
- Can they move towards a lower emissions fleet to utilise tax and NIC savings;
- Are there any advantages for 2020/21 tax year for employees to reimburse them for the costs of their private fuel; and
- Can they utilise the advantages of salary sacrifice or an employee car ownership plan (for their higher mileage drivers). For example, a driver provided with a BMW I3 Hatchback 125 kW Auto would save approximately £225 per month by their employer providing this via salary sacrifice rather than the employee paying for the car privately.
In conjunction with this review, employers also need to ensure that any compliance aspects of the changes are taken into consideration so that they are not building any unforeseen tax liability if HMRC were to undertake an employer compliance review in the future.
How can UNW Help?
UNW can help employers consider their current company vehicle provision to assess:
- The employer’s current tax and NIC costs of providing company cars and fuel;
- Whether the employer could consider any other options;
- What the costs of each option would be over the lifetime of the cars; and
- Providing ad-hoc advice for areas where HMRC typically find errors.
If you would like more information about this, or any other employment tax related matters, please do not hesitate to get in touch with Lee Muter, Employment Taxes Partner, at firstname.lastname@example.org or Paul Tucker, Employment Taxes Senior Manager, at email@example.com.
As the tax and NIC rates climb for the provision of fuel for private journeys, there are useful incentives both in looking at reimbursement of the costs of private fuel or to move to vehicles which require charging rather than filling up at the pump.