As good accountants know, buying a car through a company is usually not the most tax efficient.

This is because the company car tax regime taxes both the employee and the employer company on the provision of a company car and the way car tax is calculated. The amount of tax payable is based on the ‘car benefit’ assumed to have been provided, this is calculated by reference to the List Price multiplied by a % based on the CO2 emissions of the car. But as the value of the car depreciates, the car tax benefit remains the same as the calculation is based on the List Price not “market value”, hence the tax payable remains constant and not representative of actual value.

New car benefit rates

However, things are set to get better for the long suffering company motorist. From April 2020, there will be a sharp reduction in the car benefit rates for ‘Ultra Low Emissions Vehicles (ULEV) i.e. electric company cars with CO2 emissions of less than 75g/km. This taxable car benefit rate will reduce from 9% (2018) to 2% in April 2020.

Example:

Jaguar I-Pace EV400; List price £63,440; CO2 emissions 0g/km.

Taxable benefit:

• 13% (2018-19)

• 16% (2019-20)

• 2% (2020-21)

Based on the above the car tax benefit charge will drop from £8,247 to £1269, a massive £6,978 saving!

So what now…

Well given that the new ULEV company car tax regime is set to become much more tax efficient from April 2020, you may want to consider deferring any new car purchase until April 2020, or at least choose a ULEV car which will then benefit from the much reduced car benefit rates applying from April 2020.

If you have any queries about this or any other tax planning, please contact us on 0114 275 62 92 or email info@shipleystax.com.

***Update 2019***

Things have got even better for the green motorist. In July 2019, the Treasury scrapped existing 2020/21 benefit in kind rates (BIK) and created two new rates – one for those driving a company car registered from 6 April 2020 and one for those driving one registered before that date.

The biggest change was the introduction of a zero per cent BIK rate for Electric Vehicles registered from 6 April 2020, rising to 1% in 2021/22 and 2% in 2022/2023.

The zero percent rate also covers all-electric cars registered before 6 April 2020, as well as hybrids registered after that date that emit 1-50g/km of CO2 and have a pure electric range of 130 miles.

 The advice above is a general guide only and does not constitute advice. You must seek professional advice before taking any action.