Exciting news in respect of Benefit in Kind tax rates for company car users

 

Some exciting news on the horizon in respect of Benefit in Kind tax rates for company car users. 

Following a consultation in December 2018, HM Treasury have released their responses on a number of issues, and these are set for inclusion in the Finance Bill 2019.  One major inclusion is the potential reform of Benefit In Kind tax rates for company car users.  We have included more details on this below.

After the implementation of the more stringent WLTP (Worldwide Harmonised Light Vehicle Test Procedure) in respect of calculating CO2 emissions for vehicles and company car benefits in kind, company car users, driving cars that produce high amounts of CO2 could find themselves with even larger tax bills.  However, there is potential to fully avoid the Benefit In Kind tax charges in 2020/2021.  The answer perhaps lies with electric vehicles? 

HM Treasury have proposed (based on the implementation of WLTP) to reduce the Benefit In Kind tax charges on electric vehicles by 2% in 2020/2021, meaning in that year alone the rate of BIK payable by company car drivers will reduce from 2% to 0%.  Allowing company car drivers to drive their company car in 2020/2021 with no BIK implications. This also applies to drivers of Plug-in Hybrid vehicles that can travel more than 130 miles on battery power alone.  Some of these proposals may only apply to cars registered after 6 April 2020 as well as those registered before that date. 

The 0% rate is set to apply in 2020/21 and is proposed to rise to 1% in 2021/2022 and 2% by 2022/2023. Still a significant saving compared to the new WLTP rates applicable to the most polluting vehicles. 

Employers can also benefit from Tax Relief on the provision of Electric vehicles via First Year Allowances for the purchase of new vehicles allowing relief of 100% of the purchase cost as a deduction against taxable profits in the year of purchase.  So there is potential for some significant Tax Savings. 

This legislation is currently in draft format and has not been finalised by Parliament at this stage.  Therefore, there may be some changes before it is fully implemented into the 2019 Finance Bill.  

Watch this space for further updates and if you wish to discuss this further, please do not hesitate to get in touch with a member of the team.