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 aaronhemmington@hawsons.com or visit www.hawsons.co.uk