Government says no company car tax on electric vehicles

Company car drivers of electric and ultra-low emission cars were already looking forward to a significant decrease in their benefit in kind tax charge from 6 April 2020, but Government has taken this one step further announcing yesterday that drivers of the cleanest vehicles will pay no tax charge at all!

In a long-awaited response to its review of vehicle excise duty and company car tax testing procedures, the Treasury has re-written the previously published benefit in kind rates for 2020/21, creating two new benefit in kind tables for those driving company cars depending on whether they are registered before or after 6 April 2020.

For cars registered after 6 April 2020, it looks like most company car tax rates will be reduced by two percentage points, which means that drivers of wholly electric cars will have their benefit in kind tax charge calculated at 0% and pay no benefit in kind tax at all.

This relaxation is also extended to company car drivers of electric vehicles registered before 6 April 2020 who were already looking forward to a reduced benefit in kind tax charge from 6 April 2020 when the relevant percentage was due to reduce from 16% to 2%, but this also now falls to 0%.

The 0% rate will also apply to hybrid company cars registered from 6 April  2020 with CO2 emissions of less than 50g/km and a pure electric range of 130 miles or more.

The relevant benefit in kind percentages discussed above will increase to 1% in 2021/22 and 2% in 2022/23, but this is a great incentive to consider electric vehicles as a low-tax option to the traditional company car.  The savings can be quite dramatic, for example choosing a Tesla Model S over a comparable Mercedes S350 could deliver annual benefit in kind tax savings of £11,000 for a higher rate taxpayer, as illustrated below:

Tax YearTesla Model S Standard
Range AWD
Mercedes S350d AMG Line

The tax saving isn’t only for the company car driver.  The employer will also benefit from lower National Insurance costs.  In the illustration above, the employer’s saving could be £1,500 per annum.

If you’re in the market to change your own company car, or if you’re looking to change cars used by your employees, let us know so that we can help you make informed decisions that save tax and National Insurance all round.

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