New company car tax rates boost business leasing appeal
After much twiddling of thumbs and generally ignoring the cries for clarity, the government has finally revealed its plans for company car tax.
And it's largely good news.
The move will benefit just under a million company car drivers. Those with vehicles registered before April 06, 2020, will see their company car tax bands frozen at the 2020/21 rates until 2022/23.
Anyone registering a new company car after April 06, 2020 will also be rewarded with a two percentage-point tax cut, while those who choose a zero-emission company car will pay no Benefit-in-Kind (BIK) tax at all in the first year. Diesel drivers will still pay an additional 4% on top unless their car meets RDE2 emissions limits.
The reason for the delay was to wait for the results of a recent review of WLTP and vehicle taxes. With BIK rates currently calculated on CO2 outputs, the switch to WLTP emissions testing - a more accurate reflection of real world driving (we won't bother you with the acronym explanation) - instead of the previous and discredited NEDC standard (ditto re acronym) means higher emissions are rates are being recorded.
As a result, company car drivers and those on a business car lease were facing a potentially significant hike in tax rates.
Following consultation between the government and the automotive industry, the Treasury agreed to replace the previously published BIK rates for the 2020/21 financial year with new tables.
The two tables relate to cars registered before and after April 06, 2020 and run up to tax year 2022/23. At this point the government plans to realign them into a single tax rate table. Beyond that point we still don't know as the official line is that tax rates “remain under review”.
New company car tax tables benefit drivers moving to EVs
With the new company car tax tables, it's a clear indication that the Treasury is aiming to move company car drivers into electric cars.
A pure electric vehicle with zero tailpipe emissions on a business car lease will be taxed at 0% for cars registered after April 06, 2020. That's no BIK tax. At all.
But it gets better than that. The zero percentage rate is also extended to company car drivers in pure electric vehicles registered before April 6, 2020.
It's not just fully electric drivers that will benefit: company car tax rates are low for drivers of plug-in electric vehicles (PHEVs), too. For example, a company car user in a BMW 330e saloon business lease will pay company car tax at the rate of 12% if the car is registered before April 06, 2020, but only 10% if it's registered after that date.
Gateway2Lease welcomes the tax certainty
We think it's great that the uncertainty over the tax position of company cars has gone. It means both large fleets and SME businesses can now proceed with clarity over their next car lease.
Of course, we don't know yet what company car tax will look like post 2024 but the Government has said it aims to announce any changes to the tax structure two years in advance.
One slight downside to this is the number of zero emissions cars on the roads is increasing but availability is still something of an issue. Unless the Government comes up with a way to further incentivise electric cars the 0% BIK may have expired before the manufacturers are fully up to speed with production.
On the plus side, we know what will happen over the next few years and that is that company car drivers will, on the whole, pay less tax. Not only that, choose the right car and you could end up paying no tax on it at all.
It's a bit like giving yourself a pay rise. And we all like that!
Check out the new tax tables on the government's Personal Tax and Benefits page. Scroll down to ‘Company Car Tax'.
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