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Electric cars to be exempt from company car tax in 2020

Mike Wakeford

When an employee or director has use of a company car, they are subject to benefit in kind tax. The amount of tax payable depends on the car’s value when new, and the CO2 emissions it produces. Therefore, an employee with a 1.2l petrol Toyota will pay much less tax than one with a 2.0l diesel Audi. 

For cars registered on or before 5 April 2020, CO2 emissions are assessed under the NEDC (New European Driving Cycle). However, this is being replaced for benefit in kind purposes for cars registered on or after 6 April 2020 by the WLTP (Worldwide Harmonised Light Vehicle Test Procedure). Under the WLTP, emissions regulations are more stringent and use the on-paper emissions recorded which could be much higher than the current amounts calculating using NEDC. As CO2 emissions play an important role in calculating the tax due on a company vehicle, this change will result in an increase in tax payable for exactly the same car if it is registered after 5 April 2020 rather than on or before that date. 

To counteract this potential increase in tax, the Treasury will replace the previously published benefit in kind rates for the 2020/21 financial year for cars registered on or after 6 April 2020 with new tables that will see most percentage bands reduced by two points.   All cars registered on or before 5 April 2020 will not be affected by these changes, with one exception (see later for details of this).

The benefit in kind charges for cars registered on or before 5 April 2020 will be fixed at the same percentage for 2020/21, 2021/22 and 2022/23, meaning an end to the regular increases in tax charges of recent years.  
The charges for cars registered on or after 6 April 2020 will have their benefit charge increased by 1% in 2021/22 and another 1% in 2022/23 meaning that from 6 April 2022 the benefit charge will be equalised for cars with the same level of emissions, regardless of whether this is measured by the old NEDC rules or the new WLTP ones.

The exception where the reduction in benefit in kind will apply to all vehicles, regardless of when they were first registered, is for electric vehicles that have no CO2 emissions at all.  The Treasury has decided to reduce the benefit in kind to zero for all cars with no CO2 emissions for the 2020/21 tax year only.  The benefit will then increase to 1% in 2021/22 and 2% in 2022/23. 

It is also worth noting that this change to the use of WLTP figures will take effect on 6 April 2020 for the calculation of vehicle excise duties for cars registered on or after that date.
If you would like more information on changes to company car tax, please do not hesitate to contact your local Moore office