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Company car taxation – how are things looking?

By Nigel Morris

Tax Director

MHA MacIntyre Hudson

UNTIL recently, if your policy was based on the ‘whole life cost’ of vehicles and you set appropriate levels of CO2, miles per gallon (MPG) and residual value, you wouldn’t go too far wrong.

However, the method for determining the CO2 ratings and MPG figures has recently changed and this is causing a lot of confusion, which is impacting choice lists. We now have the World Harmonised Light Vehicle Test Procedure (WLTP) test basis for determining CO2 and MPG.

The impact of the new WLTP ratings could be dramatic, leading to higher CO2 emissions and lower fuel economy ratings.

The increased BIK taxation and VED costs are only one part of the puzzle.

If a company leases a company car, the amount they can reclaim is based on the CO2 rating. If the CO2 rating is above 110 g/km, from April 2018, the amount that can be claimed is restricted by 15 per cent.

On the other hand, if the company buys the car, the amount of capital allowances they can claim if the vehicle is above 110 g/km is eight per cent per annum , against 18 per cent per annum if it has a rating of 110 g/km or less. The higher CO2 rating can mean it will take many years longer for the full cost to be set against the company’s profits.

Alternatively, fuelled vehicles (AFVs)

The Government have reacted to the introduction or WLTP by introducing new benefit in kind tax rates that benefit Ultra Low Emission Vehicles (ULEV) and full Electric Vehicles (EVs).

The result of these changes is to reduce BIK tax on BEVs to 0 per cent in 2020/21 from the anticipated two per cent and down from 16 per cent in 2019/20. Also a reduction of two to three per cent for conventional and hybrid vehicles above 50 g/km of CO2.

This will result in the tax on an £80,000 list price BEV over four years being less than half the tax on a £32,000 diesel emitting 78 g/km CO2. However, range anxiety, vehicle supply and the UK infrastructure are still potential barriers to a broader uptake of full electric vehicles.

What can fleets do?

Businesses need to carefully evaluate their requirements.

While BIK increases impact driver decisions and the cost/benefit assessment, employees travelling regularly on business need to be in a vehicle that is fit for purpose, properly insured and properly maintained.

There are alternatives, but there’s a balance to maintain:

– Cash – cash is taxed at the marginal rate. The remaining net pay would then be required to pay for the procurement, insurance and maintenance of a car.

– Salary sacrifice – new tax rules are not likely to have the major impact anticipated. However, employers still need to focus on the ‘added value’ benefit of making it easier for employees to have an affordable new car, fully insured and maintained.

– Employee Car Ownership (ECOS) – these arrangements can generate significant tax, NIC and outright savings for the right profile of drivers undertaking high business mileage. However, the arrangements need to be properly structured and robustly managed in order to maximise value and avoid large liabilities from HMRC.

Further time may be required to see through new regulations and legislation before finding a future proof policy. Company cars remain popular, but fleet policy needs to evolve to be a hybrid affair, with business need, perk and cash allowance requirements clearly accommodated for.

For further information or a no obligation discussion contact Nigel Morris on 01604 624011 or at visit www.macintyrehudson.co.uk

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