There are three ways to reduce the tax payable by an employee or director who is provided with a company car: choose electric or hybrid, a ‘clean’ diesel, or take a van.
Electric and hybrid cars with CO2 emissions of up to 50g/km currently attract a taxable benefit of 16% of their list price, which doesn’t encourage companies to buy the more expensive electric models. However, from 6 April 2020 the taxable benefit of having a purely electric car will be 0% of its list price. This is scheduled to increase to 1% from 6 April 2021 and 2% from 6 April 2022.
Hybrids with emissions of less than 51g/km which can drive 130 miles or more on electric power, without recharging, will also be taxed at 2% of list price next year. The taxable benefits of such hybrid models will increase as the electric-only range decreases.
New ‘clean’ diesel cars are now being sold that meet the Euro standard 6d. This gives them two advantages:
• the taxable benefit is calculated as if it was a petrol vehicle; and
• the £12.50 daily charge in London’s ultralow emissions zone does not apply.
Diesel cars which don’t meet the Euro 6d standard have a 4% supplement on the percentage of list price, up to a maximum of 37%. This will also apply to diesel hybrids from April 2020.
An employee is taxed on a flat amount of £3,430 if they use a company van for private journeys, or £2,058 for an electric van. This applies irrespective of the list price of the van. So providing a commercial vehicle instead of a car can save the driver a lot of tax.
However, you need to check whether a multi-purpose vehicle was primarily designed to carry goods rather than people. A van with two rows of seats may fail this test. The definition of a van for VAT purposes is different again, and will depend on how much weight it is designed to carry.
We can help you work through the many tax implications of buying a company car or van.