Take up of company cars has dwindled over recent years as the tax liability is seen as a major drawback. Employees with a company car pay Benefit in Kind (BIK) tax depending on the value of the vehicle and they often decide that it’s more tax-efficient to use their own car and claim back their business mileage.

 

Despite the fact that over half of new cars registered in the UK are for company fleets, fewer employees are taking up the option of a company car, so companies miss out on the benefits like deductible repairs & maintenance, capital allowance relief and VAT reclaim, not to mention offering incentives to new employees.

 

A change of mindset around company cars might be required in 2020 as the government introduces tax exemptions on electric and low emission vehicles from April. Hoping to encourage more of us to ‘go electric’ in the company fleet, HMRC will take no BIK tax from April 2020 on electric vehicles and vehicles with less than 50g/km emissions and an electric range of 130 miles.

 

This big step is the first time that a company car will incur no tax at all. The 0% BIK rate will increase to 1% in April 2021 and 2% in April 2022 but cars registered before April 2020 will also benefit from the zero rates. Announced last summer, the rate change allows companies to take a more informed decision about making the transition to a zero or low emission company car fleet.

 

Although a step in the right direction, unfortunately, no plug-in hybrid models currently satisfy the low emission/electric range requirements. But even cars with a range of 30 electric miles or less will incur just 12% BIK from April 2020 which is still significantly less than around 37% BIK on high emission cars. So it could be time to think again about electric cars.

 

As well as the tax breaks available on a green fleet, progress is moving forward on the technology and infrastructure required to make electric vehicles a viable option.  If we are to meet our country’s challenging emissions targets, there needs to be a big take up of ultra-low emission vehicles in our fleets.

 

As well as being good for the environment, going green can be good for your business too. Petrol and diesel company car and van fleets cost businesses significant amounts of tax, fuel and maintenance. It is estimated that switching to electric cars and vans can save around 20-30% on these costs.

 

There are government grants available to help offset the purchase price of electric vehicles and taking this route also enhances a company’s green credentials, delivering on its corporate responsibility pledges.

 

If you’d like to find out more about switching to a low or zero-emission company car for your business, why not speak to the tax experts at CRM about the advantages it could bring. Call the team on 01865 379272.

Sage Accountant Partner Logoiris kashflowFreeagent