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Tax update: Company cars and tax

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24 June 2019

For a number of years, the concept of a tax efficient company car has been diminishing with annual increases to the benefit in kind (BIK) charge. However, the tide appears to be turning and the government has recognised that tax incentives for environmentally friendly cars are a good thing!

Unfortunately, this change will not take place until April 2020 and for 2019/20 tax charges on the individual will be higher than ever. Even the most efficient cars will be subject to a minimum BIK charge of 16% of the car’s list price.

The decision to buy a new company car, therefore, may be best delayed by a year. If it is not possible to wait that long it will still be worthwhile bearing in mind the rates from 2020, when deciding which make/model to opt for.

The best option from a tax perspective will be electric cars or hybrid cars that have a good electric range. For cars with CO2 emissions of between 0g/km – 50 g/km, 100% first year capital allowances will be available for the company and the BIK charge on the individual will drop to as low as 2% from April 2020 where the car has an electric range of 130 miles or more.

For cars with CO2 emissions of over 110g/km, the tax charges become significantly higher with annual capital allowances of just 6% for the company and a BIK charge of at least 27%, increasing up to a maximum of 37%. For example, a higher rate taxpayer having a company car with a list price of £30,000 and high CO2 emissions could face a tax bill in excess of £4,000 per annum.

One other point to note is for company cars taken as part of a salary sacrifice scheme. If the CO2 emissions of the car are in excess of 75g/km and the arrangement has been entered into post 6 April 2017, the individual is now taxed on the higher of the BIK charge and the salary foregone (or cash alternative).

For directors, the decision of whether to own a car personally or via a company could hinge upon whether they are looking to purchase an energy efficient or gas guzzling diesel car. We can help by carrying out a comparison of the tax implications of company versus personal ownership.