Despite year-on-year tax rises, company cars remain a popular benefit. While the tax cost of expensive high-emission cars can be eye-watering, by choosing carefully it’s possible to enjoy the convenience that comes with a company car for a relatively low tax cost. So, as the new tax year gathers steam, what’s changed for 2018/19?
Company cars: Tax Charge
Company cars are taxed as a percentage of the list price of the car when new (the appropriate percentage). It doesn’t matter how much was actually paid for the car, or whether it was bought second-hand. It’s the list price that is used to work out the taxable amount and, where optional accessories are added, the list price is adjusted to reflect these.
The percentage charged to tax depends on the level of the car’s carbon dioxide (CO2) emissions. This increases each year and 2018/19 is no exception. For 2018/19, the appropriate percentage for a car with CO2 emissions of 50g/km or less is 13% (up 4% from 17/18), whereas for cars with CO2 emissions in the range of 51 to 75g/km it is 16% (up 3% from 17/18).
For cars with CO2 emissions of more than 76g/km, the charge for 2018/19 is 19% (up 2% from 17/18), but if the emissions exceed 94g/km; the charge increases further by 1% for each 5g/km rise in CO2 emission, subject to a maximum charge of 37% (CO2 emissions of more than 180g/km).
Unfortunately, even if you haven’t changed your car the new rates still apply, but when calculating the charge any capital contributions made by you, the employee (max £5,000) will reduce the list price.
The list price will also be reduced to reflect any payments for the private use of the car or if the car is unavailable for part of the tax year.
Company cars: Diesel cars
Diesel cars attract a supplement over and above the tax charge for petrol cars from an additional 3% for 2017/18 to 4% for 2018/19. However there is some good news in that the diesel supplement cannot take the charge above the maximum of 37%.
Also the diesel supplement increase only applies to cars that aren’t certified to the Real Driving Emissions 2 (RDE2) standard and to cars registered on or after Ist January 1998 which have a registered NOx emissions value that exceeds the RDE2 standard.
Company cars: Lower-Emission
Drivers choosing lower-emission cars are rewarded with lower tax bills; for example on a car with a list price of £30,000, you would pay tax of £3,720 on the company car based on a CO2 emission of 150g/km. However, If you chose a car of the same value but with CO2 emissions of 40g/km, you would pay tax of £1,560 in 2018/19, thus saving £2,160 a year.
Company cars: Electric cars
Electric cars with zero emissions are charged at the same percentage as cars with CO2 emissions of 50g/km and below – 13% for 2018/19.
However, from 2020/21 new emission bands will apply to cars with CO2 emissions of 50g/km or less based on the electric range of the car. This is the maximum distance the car can travel without recharging the battery or using the combustion engine of the plug-in vehicle.
Under the new bands, the cars with the greatest range have the lowest appropriate percentage. Cars with an electric range of 130 miles and over have an appropriate percentage of 2%, with this gradually increasing to a maximum of 14%, for car with an electric range of 30 miles and under.
It clearly pays to go electric, and the opportunity to benefit from a lower tax bill for an electric car should be taken into account when choosing a new company car.
Company cars: Fuel
A separate fuel scale charge applies where fuel is provided for private mileage in a company car. This is found by applying the appropriate percentage (as used in working out the taxable benefit of the car) to a set amount. For 2018/19, this is £23,400 – up from £22,600 in 2017/18.
This means that for a car with CO2 emissions of 150g/km, the fuel charge is £7,006 for 2018/19, costing a higher rate taxpayer £2,802.40 in tax. Unless private mileage is very high, private fuel is rarely a tax-efficient benefit and where the cost of the car is below £23,400 for 2018/19) more tax will be payable on the fuel than on the car.
By contrast, no fuel charge arises if the employer provides free electricity for an electric car.
Company cars: Choose wisely
The company car tax rules reward those who choose greener cars. The tax charge on a cheaper, low-emission car is considerably less than an expensive car with high CO2 emissions and if you choose an electric car, the tax bill reduces further to as little as 2% of the list price.
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