Independent employment tax adviser
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No logic for new car tax bands

9th Dec 2016
Independent employment tax adviser
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Company car
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MHA MacIntyre Hudson’s Alastair Kendrick examines the rather complex company car mileage bands announced in the Finance Bill 2017.  

It is fair to say the company car announcement on low emission vehicles in the Autumn Statement has created some confusion with employers. On the basis of what is proposed, the changes look at odds with the tax employees will be expected to pay in years up to 2019/20. 

The benefit in kind on low emission vehicles is set to increase up until 2019/20. However, the government announced in last week’s Autumn Statement a substantial reduction from 6 April 2020 onwards

The announcement split the ultra-low emissions fleet (vehicles below 75g/km CO2) into three distinct groups:

1. Cars with emissions of 51g/km CO2 and above will have a taxable benefit based on a percentage of the vehicle’s list price, between 15% and 19%. This is similar to the method of determining the taxable benefit for higher CO2 emissions fleet cars. 

2. The specific complication arises for cars that have emissions of between 1 and 50g/km CO2 from 6 April 2020. The taxable benefit of these cars will not be simply dependent upon the CO2 emission of the vehicle, but it will also depend on the distance it can travel on electric power.

For example, the percentage of list price, which forms the benefit charge for a car with an electrical range between 30 -39 miles, will be 12%. HMRC has released five specific bands to apply by reference to the electrical range of cars (see below), of between 2% and 14%

3. Finally, a fixed percentage of 2% will apply to purely electrical driven vehicles.

CO2 (g/km)

Electric range (miles)

2020 to 2021

0   2
1 - 50 >130 2
1 - 50 70 - 129 5
1 - 50 40 - 69 8
1 - 50 30 - 39 12
1 - 50 <30 14
51 - 54   15
55 - 59   16
60 - 64   17
65 - 69   18
70 -74   19

This means, we now have a situation of some considerable confusion, largely driven by the reversal of the government to remove the 3% surcharge on diesel, only to re-instate this. It is fair to say we are in a mess if someone asks us to explain the logic behind the figures. 

A real issue for the industry is whether an employer in light of the figures will decide to defer any move to diesel until post-2020 when these new rules come into force. So these changes hardly encourage a green policy move for fleets in the short term.

 

Alastair Kendrick is a leading expert on all aspects of employment tax and company car taxation.

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