Chris Thorpe looks at some company car changes since 2020, and their tax effect.
One of the more common benefits-in-kind is the provision of a company car. An income tax and Class 1A National Insurance contributions (NICs) charge arises when the employer provides a car which is available to the employee for their private use. The actual use of the car is irrelevant if the car is at the employee’s disposal; this is enough to trigger the liability.
The income tax and NICs rate is determined by the list price of the car (not the price paid) and applying that figure to a percentage based upon the CO2 emissions; the higher the emissions, the higher the percentage; clearly, the intention is to incentivise the use of cleaner cars and deter dirtier ones. Those percentages go up and up each year.
Benefits-in-kind
From 2020/21, the scale was based not only on CO2 emissions but started factoring in hybrid and zero-emission cars under the ‘Worldwide Harmonised Light Vehicles Test Procedure’. Cars registered between 1 October 1999 and 5 April 2020 come under the ‘old’ regime (i.e., the ‘New European Driving Cycle’ regime), but for 2020/21 and 2021/22 there are different rates depending on whether the car is registered pre or post-6 April 2020, the latter attracting slightly lower rates. Diesel cars attract a surcharge of 4% above the standard rate, the total of which cannot go above 37%.
Zero-emission cars attracted a 0% rate for 2020/21. Previously, such cars would have attracted a 16% rate in 2019/20, as there was no separate rate for zero-emission cars; they were lumped together with other cars with emissions up to 50g/km. It seems rather odd that it was left so late before zero-emission cars were rewarded with a separate, and far lower rate. However, that rate is starting to creep up again.
For 2021/22, the rate for zero-emission cars is 1%, and for 2022/23 (when the same rates apply to whenever the car was registered) it is 2%. For hybrid cars (those with CO2 emissions of 50g/km or below), the percentage depends on how far the car can go under electric power – 130 miles or over and it is treated the same as a zero-emission car.
Other benefits
That 50g/km limit was important prior to 1 April 2021; new cars with emissions at or below that limit attracted the 100% enhanced capital allowance. Thereafter, only zero-emission cars have that privilege.
However, salary sacrifice schemes are still effective for those cars with a CO2 emission of 75 g/km or less, giving employees some income tax and NICs relief.
Is it a car?
It might be worth checking, before any of this, whether the vehicle in question is actually a car. If it is a van (or ‘vehicle of a construction primarily suited for the conveyance of goods or burdens of any description’), then there is no list price and no CO2 percentage; instead, the taxpayer is simply assessed on a fixed amount (i.e., £3,600).
For employers, cars do not attract the annual investment allowances for capital allowance purposes, whereas vans do.
Usually, it’s obvious when a van is a van, but not always. In Coca Cola & Ors v HMRC [2020] EWCA Civ 889, the Court of Appeal held that Vauxhall Vivaros and VW Kombis were cars for income tax purposes, despite being vans for VAT purposes.
Practical tip
Company cars for private use are expensive, and increasingly so – especially if fuel is also provided. The only way this can be avoided is for the car to be zero-emission or at least a very efficient hybrid, or failing that, a van. Alternatively, an employee using their own car and claiming the 45p (or 25p) per business mile might be more cost-effective, depending on the employee’s circumstances.
