How to prepare for the 2020-2021 company car tax bands

17 June, 2019

The Paris Climate Agreement. Commitments to improve air quality. The UK Government’s clean transport strategy. These are just some of the initiatives that are creating a future that polluting vehicles won’t be part of.

The government is stopping short of strong-arming citizens into greener cars. Instead, people are being prompted people to make low emission vehicle choices using a carrot and a stick. Tax breaks will favour those who drive ultra low emission vehicles (ULEVs) and penalise people who stick with higher polluting vehicles.

This change will come into effect in the 2020-2021 tax year when HMRC introduce new tax bands for company cars and car benefits. We explain what this radical shake up involves and what it means for drivers and organisations.

 

What are the tax changes for company cars?

From the start of the 2020 tax year in April, drivers and organisations who take up ULEVs - vehicles that emit 75g/km CO2 or less - will pay less Benefit-in-Kind tax.

Those choosing cars with least emissions will only incur a tiny 2% tax rate, with zero-emission models now tax-free in 2020-21, only rising 1% each year until 2023. This is a massive drop from 13%, the lowest tax band in 2018-2019.

Aside from the huge tax breaks for the lowest emitting cars, the other big change is that ULEV BIK rates for cars emitting 1-50g/km CO2 will also be impacted by the distance they can travel on electricity alone. Cars that can go for less than 30 miles will attract a BIK rate of 14% whereas those that are electric only or can travel 130 miles or more on electricity alone will benefit from a 0% BIK rate.

In 2020-2021, the diesel surcharge of 4% continues to apply, although diesel hybrids will be exempt. The highest BIK rate that can be applied to any car will be a hefty 37%. This includes petrol cars emitting over 160g/km and diesels emitting over 140g/km.

This change is part of a long-term trend towards encouraging drivers to take up ULEVs. And it’s clear that the government classifies green cars as those with emissions at or below 50g/km CO2.

This might sound like a challenge for drivers and organisations, but at Tusker, we think it’s a great opportunity to secure a triple win.

 

How can you benefit from these changes?

Whether you’re a fleet manager, a HR professional seeking cost-effective company cars or an employee who wants to get behind the wheel of a highly affordable brand new car, ULEVs are the answer.

They come with a range of benefits (beyond amazing tax breaks) for organisations and drivers including:

The alternative is to continue operating a petrol or diesel vehicle. However, this will hit your budget hard:

  • In 2014/2015, a petrol car emitting under 130g/km CO2 was considered green enough to attract a BIK band of 18% - in 2020-2021 it will be up to 30%
  • In 2014/2015, a sub-100g/km CO2 car merited a 12% band - in 2020-2021 it will be up to 24%

What does this mean in real terms? An individual earning £30,000 a year driving a 1.5l VW Golf petrol in 2020-2021 would incur £116 per month in BIK tax. In the same tax year, the tax for an all-electric Golf drops to £0.

Over the course of a three-year period, someone on an annual salary of £30,000 could save almost £4,000 in BIK over a three-year contract. And, when taken under a salary sacrifice arrangement, they could benefit from an overall tax efficiency of around £6,000.

And that’s without factoring in the average Tusker ULEV driver’s fuel saving of a massive £750 per year*.

 

Don’t delay - act now

Although the improved tax changes are a way off, it’s worth taking up a ULEV right now to start making the savings that are already available.

 

*approximately. Based on driving 10,000 miles per year.

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