Electric vehicles will be exempt from company car tax next year


Electric vehicles will be exempt from company car tax next year as part of new efforts to boost switch to green models

  • Company car drivers who go electric will pay zero BIK tax from April 2020
  • BIK rates will increase to 1% from April 2021 and 2% from April 2022
  • Measures are designed to increase the uptake of fully electric cars among fleets 

The Treasury has confirmed this week that company car drivers who choose an emissions-free electric fleet model will pay no benefit-in-kind (BIK) tax for the year as part of new efforts to encourage motorists to switch to green vehicles.

Those who choose pure electric models will pay zero company car tax for the year from April 2020, one per cent tax from April 2021 and two per cent BIK from April 2022, the Government confirmed.   

The measures are designed to increase the uptake of fully electric vehicles among fleets, which contribute to almost six in 10 new car registrations in the UK.

Tax benefits for company car drivers who go green: Motorists with electric fleet cars will pay 0% Benefit in Kind tax next year, the government has confirmed

Tax benefits for company car drivers who go green: Motorists with electric fleet cars will pay 0% Benefit in Kind tax next year, the government has confirmed

The changes to BIK were confirmed this week following a review of the industry changes brought about by the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emissions regulations.

Company car tax payable by an employee is based on the vehicle’s official value – or P11D value – multiplied by the appropriate BIK rate (determined by the car’s CO2 and fuel type) and the employee’s income tax rate (basic rate of 20 per cent, higher rate of 40 per cent or additional rate of 45 per cent).

However, with CO2 outputs due to rise as a result of the more realistic WLTP measurements and diesel cars already subject to higher rates than equivalent petrols, the Government wants more incentives to encourage the one million UK company car drivers to shift to electric models.  

The Government said that ‘by providing clarity of future the appropriate percentages, businesses will have the ability to make more informed decisions about how they make the transition to zero emission fleets’.

It added: ‘Appropriate percentages beyond 2022-23 remain under review and will be announced at future fiscal events.

‘The Government aims to announce appropriate percentages at least two years ahead of implementation to provide certainty for employers, employees and fleet operators.’

Those who choose pure electric models will pay just 1% tax from April 2021 and 2% BIK from April 2022, the Treasury has announced

Those who choose pure electric models will pay just 1% tax from April 2021 and 2% BIK from April 2022, the Treasury has announced

The new measures are designed to increase the uptake of electric models among fleets, which contribute to almost 6 in 10 new car registrations in the UK

The new measures are designed to increase the uptake of electric models among fleets, which contribute to almost 6 in 10 new car registrations in the UK

The savings offered to those willing to go green can be significant, especially those company car drivers paying a higher rate of tax.

For instance, the latest 2.0-litre diesel BMW 3 Series (priced from £32,000) emitting between 110 and 115g/km CO2 emissions will be subject to 31 per cent BIK from April next year.

That means a 20 per cent tax payer will fork out £2,000 a year in BIK, while those in the higher 40 per cent bracket will have to pay £4,000 between April 2020 and March 2021.

And it’s not just pure electric – or battery electric – vehicles that will be exempt from BIK in 2020; plug-in hybrid cars are also included in the zero company car tax rate, says the Treasury.

Qualifying plug-in hybrid models need to officially emit less than 50 grams per kilometre of CO2 and be able to travel for at least 130 miles as a pure electric vehicle.

Industry insiders have called the decision a 'milestone moment' as it's the first time company car drivers will not have to pay any tax

Industry insiders have called the decision a ‘milestone moment’ as it’s the first time company car drivers will not have to pay any tax

Like pure electric cars with no exhaust emissions, company car drivers will benefit from zero BIK tax from April 6 2020, rising to one per cent and two per cent in subsequent years. 

However, these is one significant problem: there are currently no models hybrid models that meet the requirements set by the government.

Fortunately, there are tax breaks for drivers of hybrid models with shorter electric-only ranges, though they are no where near as generous.

Plug-in hybrids with an official electric range of less than 30 miles will be subject to 12 per cent BIK from April next year, which is still less than a car powered solely by a combustion engine.

Matthew Walters, head of consultancy and data services at company car provider LeasePlan UK, called the decision a ‘milestone moment for the industry, as it is the first time company cars will pay no tax at all’.

The UK’s North vs South divide for electric car registrations

Electric vehicle registrations in the North of England are lower than in the South by more than a third with experts pointing to limited infrastructure for EVs in the North, new research by insurer Admiral has revealed.

The study analysed over 8,500 customer registrations of electric vehicles in over 50 British cities between 2016 and 2018, discovering the areas with the highest rate of EV registrations in the last three years, including hybrids.

The cities that saw the greatest rise in registrations were Cardiff (156 per cent), Oxford (155 per cent) and Bristol (154 per cent). 

In comparison, the cities with the lowest growth in EVs were all found in the North with Bradford (11 per cent increase over the same period), Blackburn (41 per cent) and Warrington (46 per cent) coming bottom of the table.

On average, southern cities have seen a 113 per cent increase in EV registrations between 2016 and last year. 

Those in the Midlands increased by 87 per cent, while the increase in EV registrations for northern cities was lowest, at an average of 78 per cent. 

It said the findings reflect the UK’s current infrastructure for electric cars as drivers living in Hull and Wigan have just 13 and 19 EV charging points within a five mile radius respectively while London and Milton Keynes both have over 100-plus ports available. 

Dr. Dimitrios Xenias of the Electric Vehicle Centre of Excellence, Cardiff University, said: ‘The main factors stopping people from buying electric cars are their high cost, and the lack of secondary market.

‘Any government should provide a stable, long term context for any type of new technology to grow. This applies to electric vehicles as well. You cannot allow any marketplace to grow by changing the rules every few years. Short lived, short-sighted incentives have short term and limited results.

‘For electric cars to become the primary vehicle on the road in the near future, as in five years, we would need to be seeing EVs out-selling conventional cars today. Currently, there is not enough capacity and infrastructure for this, but in the mid-to long term it is a possibility that EVs will become mainstream.’

He added that the UK should be looking to Norway for guidance with their exceptional and promising EV uptake, which has been the result of high-value incentives for drivers.

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