Why SMEs should reconsider the company car

Company Fleet 

There has been lots of talk in the last 12 months about the decline of the company car. Everywhere I've looked the narrative has been the same.

Excessive benefit in kind tax is driving people out of the company car and into taking a cash alternative.

But I think it's time for the business lease to bite back. The new company car taxation tables, due to take effect from April 06, 2020, encourage drivers to consider a low emission or zero emission vehicle for their company car.

That's something we are already encouraging here at Gateway2Lease.

As you know, we're a family business and want to encourage beneficial behaviours. At our brand new offices, we have installed two electric chargers as a starting point, but we are planning more. Because we want our staff to start thinking about electrification, and I think it's time businesses did, too.

From April 06, 2020, fully electric cars will attract 0% company car tax, which makes electric vehicles very attractive from a business point of view.

What's more the taxation remains low over the following tax years. In 2021/22 an EV's tax rate rises to 1% and then to 2% in 2022/23. Therefore by taking a business contract hire on an electric vehicle the driver will pay very little company car tax over the three years of the lease period.

Which also means the business is paying a tiny amount in NIC costs over the three year business lease.

And while I admit some lease rental rates on electric vehicles can be high, it's worth considering their cost over the period of the lease. There's no significant fuel cost (about 4p per mile on electricity) and with fewer moving parts there's less to maintain, so there are cost savings to be considered there as well.

What doesn't change is the tax-efficiency of a business lease: 100% of the business contract rental can be set against taxable profits, along with 50% of the VAT assuming there will be some private mileage.

I think that adds up to a very compelling proposition for any business.

And don't forget it's not just electric vehicles. Ultra low emission cars such as plug-in electric hybrids (PHEVs) also have reduced benefit in kind. So if a full electric car is a step too far at this stage, a PHEV makes an ideal compromise.

PHEVs are taxed depending on their CO2 emissions and the distance they can travel in zero only emission mode. Without getting too technical, effectively the benefit in kind rates range from 3% to 12% and step up 1% point each tax year for the next two years.

So for those businesses who were considering exiting the company car, I think now is time to reconsider. Business contract hire on a zero emission or low emission car makes a lot of … well, business sense.

Written by: Rob Marshall, Director of Gateway2Lease

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