At a time of political and economic uncertainty, controlling your organisation’s costs has never been more critical. However, you also know how important it is to offer a competitive, exciting benefits package that appeals to employees and meets organisational objectives.
With the potential for conflict between these two opposing forces, how do you strike the right balance between cost control and company car benefit provision? The short answer: by providing cost the most cost effective cars and taking maximum advantage of HMRC tax breaks. The long answer: read on.
A potted history of company car tax
Once upon a time, company cars were a tax free benefit. Until the government changed the rules and applied Benefit-in-Kind (BIK) rates that increased over the years. As greener transport became a government goal, the tax regime was used to encourage the take-up of low emission cars and to discourage drivers from choosing gas guzzlers.
As technology improved, what HMRC counted as a green car changed. From 2002 to 2008, cars emitting 144g/km CO2 or less were considered low emission, decreasing to 120g/km CO2 from April 2008.
Car benefit tax changes - an opportunity for organisations and employees
Today, with new zero-emission electric cars and ultra-low emission hybrid car technology, the government has shifted its view again. From April 2020-2021, cars with no emissions (pure electric cars) will drop from a 16% BIK rate to 0%. Which will increase to 1% and 2% in 2021-2022 and 2022-2023. ULEVs that emit 50g/km CO2 or less will also receive significant cuts in their BIK rates to as low as 2% in the 2020-2021 tax year.
This is a chance for forward-looking organisations to save significant sums in NI contributions and help employees get an amazing car with much less tax and low running costs.
These changes are an effective emission-reducing strategy because of the way company car benefit works in the UK. Employee income tax and employer NICs are calculated based on:
- the value of the car
- multiplied by a percentage determined by the car’s:
- CO2 emissions
- fuel type
- electric range
This calculation results in the employee’s BIK rate which is then multiplied by the individual’s marginal tax rate of 20%, 40% or 45%.
Here’s how it works. A diesel company car emitting 120g/km CO2 would attract a 33% BIK rate from April 2020. Multiplied by a £25,000 price for a basic rate tax payer, the tax payable would be £1,650. And £1,138 in NICs. A comparable electric car would attract a 0% BIK rate so the EV wouldn’t incur any tax at all for the year.
This position makes it more than possible for your business to offer EVs at a lower cost than equivalent petrol or diesel cars. And there are other major benefits for both employers, employees and the environment.
Plenty of other advantages too
Of course car benefit isn’t all about the tax savings. There are lots of other great reasons to offer this sought-after benefit. Partner with Tusker and you’ll enjoy:
- Competitive manufacturer discounts so you know you’re securing great value for money
- A comprehensive support package covered by the monthly amount - this includes maintenance, servicing, breakdown cover, road tax, insurance and more
- Complete scheme support saving you time and money
- Our unique lifestyle protection scheme which covers you for unexpected changes like parental leave, redundancy, death and a range of other circumstances
- An exceptionally accessible benefit as no credit check or deposit is required
- Reduced business mileage claims thanks to the low cost of electricity and the additional distances hybrids will cover on one tank of fuel
- Carbon offsetting for salary sacrifice cars to boost your company’s green credentials and reduce your carbon footprint
Changing the profile of your company car fleet from fossil-fuels to electric is a very attractive proposition. The majority of savings comes from tax efficiencies although the fuel savings will provide additional reductions on top.
Working with a car benefit provider who can take you through the tax changes and ensure you’re generating the best scheme ROI is invaluable. Allowing you to deliver on your employee benefit, corporate social responsibility and cost saving agendas.