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Company car tax changes: 2019/20 and beyond

1st Oct 2019
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taxinsider
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Sarah Bradford explores changes to the company car tax regime and explains why it makes sense to think electric going forward.

With concerns over climate change hitting the headlines, it is perhaps appropriate that the company car tax regime seeks to encourage ‘green’ choices; and rewards those who opt for cheaper lower emission cars with lower tax bills. 

The current regime for taxing company cars has been around in broadly its current format since April 2002. The system, which charges a percentage of the car’s list price to tax depending on the car’s carbon dioxide (CO2) emissions, is a familiar one. 

However, since 2002 there have been various tweaks to the system, particularly as regards electric and low emissions cars; and there are more on the horizon. 

The appropriate percentage

Since its introduction, the appropriate percentages have increased year-on-year – in 2002/03, an employee with a company car with CO2 emissions of 165g/gm would be taxed on 15% of the list price; for 2019/20, the maximum charge of 37% applies to cars with CO2 emissions of 165g/km and above.

For 2019/20, the appropriate percentage for zero-emission cars and cars within the 1-50g/km band is set at 16% - up from 13% for 2018/19. A three-percentage-point increase on the 2018/19 figures applies at all emission points until the maximum charge of 37% is reached. 

The increase in the appropriate percentages means that the taxable benefit for a person driving a £30,000 company car with CO2 emissions of 165g/km or less will be £900 more in 2019/20 than in 2018/19. This equates to a tax increase of £360 for a higher rate taxpayer and £180 for a basic rate taxpayer. 

Employers will also pay £124.20 more in Class 1A National Insurance contributions.

Alternative valuation rules

Where the car is provided via an optional remuneration arrangement (OpRA), if the CO2 emissions are more than 75g/km, the car is taxed by reference to the salary foregone or cash alternative offered where this is higher than the cash alternative under the company car tax rules. 

Transitional rules mean the alternative valuation rules do not apply until 6 April 2021, where the arrangement was in place on 5 April 2017, unless the arrangement is varied or renewed prior to that date.

Diesel supplement

Diesel cars attract a supplement compared to petrol cars with the same level of emissions. The nature of the supplement was changed from 6 April 2018, applying from that date to cars that are registered on or after 1 January 1998 and which do not meet the real driving emissions 2 (RDE2) standard under Annex IIIA of the Commission Regulation (EU 2017/1151). This is set at a level of Nitrogen Oxide (NOx) emissions not exceed 80mg/km. 

Manufactures will certify the level of a car’s NOx emissions on the certificate of conformity, which will record the Euro-standard to which the car is certified to. Cars that are RDE2 compliant meet Euro standard 6d. Cars that have a real-world NOx emissions figure greater than the 80mg/km needed to comply with the RDE2 standard are subject to the diesel supplement, as are diesel cars registered on or after 1 January 1998 which do not have a certified NOx emissions figure. 

Where a car was manufactured on or after September 2018, the online vehicle enquiry service (https://vehicleenquiry.service.gov.uk) can be used to check whether a car meets the Euro standard 6d. This information is also available on the V5C registration document where the car is registered on or after 1 September 2018, Cars that are shown as meeting Euro status 6AJ, 6AK, 6AL, 6AM, 6AQ or 6AR meet Euro standard 6d (and, therefore, escape the diesel supplement).

The diesel supplement is set at 4% from 6 April 2018. However, the maximum charge (after application of the supplement) is capped at 37%.

HMRC have previously stated that they did not expect any cars to meet the RDE2 standard prior to 6 April 2019 – thus unless the maximum charge applies, the expectation is that the diesel supplement will apply to all diesel cars in 2018/19. 

From 6 April 2019, where cars are compliant with Euro standard 6D (and thus meet RDE2), a new fuel type – Type F – will be shown on form P46(Car). Previously, HMRC advised that fuel Type A should be used for notifying diesel cars meeting Euro standard 6b.

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