New tax rates means it pays to switch your fleet to EVs

9th April 2020
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The long-awaited new company car tax rates have taken effect as of this week, bringing certainty for fleet operators and helping to springboard the switch to electric vehicles.

The UK’s company car market is big business. Up to the end of November last year, 53% of cars sold went to fleets, figures show. But when it comes to offering your staff company cars, the common drawback is that often they create more personal tax liability than you save on the company’s corporation tax bill, meaning many employees choose to opt out of having one altogether. This is because employees taking company cars are liable to pay ‘Benefit in Kind’ (BiK) tax to reflect the monetary value of this perk.

However, The Government says that company car drivers choosing a pure electric vehicle will pay no benefit-in-kind (BIK) tax in 2020/21, and rise to 1% and 2% in 2021 and 2022 respectively. This compares to 37% at the opposite end of the emissions scale. HM Treasury says that for cars first registered from April 6, 2020, most company car tax rates will be reduced by two percentage points. That means for a pure electric vehicle with zero tailpipe emissions, company car drivers will be taxed at 0%, paying no BIK tax at all for the first year, and gives us 3 years of tax certainty. 

In addition, company car tax will, for the first time, be calculated using the CO2 figures generated by the new, tougher Worldwide Harmonised Light Vehicle Test (WLTP) regime. To put it simply, the government is waving a fantastically juicy carrot at drivers and employers choosing electric and plug-in hybrid cars!

How does this translate?

Autocar has worked this out as a price comparison, and to give you an idea of how generous the new tax rates are, the driver of a Nissan Leaf electric car previously would have paid between £871 and £1960 in company car tax, depending on their salary. From 6 April, the Leaf falls into a 0% tax band, meaning they’ll pay nothing. That generosity from the government lasts only a year, but the following tax year the Leaf bill rises to just £54-£122, then £109-£245 the year after that (company car taxes rise annually with the same inevitability as rail fares).

It’s even more striking when you compare the figures for EVs against combustion-engined cars. While a Tesla Model S costing £97,700 attracts a 0% company car tax from 6 April, a slightly cheaper Mercedes-Benz S450L AMG Line costs the driver a whopping £13,116 for the year.

What next?

Statistics show that after these changes were announced in July 2019, sales of EVs doubled in the second half of the year compared with the first half, according to figures from the Society of Motor Manufacturers and Traders (SMMT). In addition, business lease firm Alphabet reported a 165% rise in orders for plug-in vehicles… which is all a positive sign with some real momentum on our road to zero. 

Charging an EV at an employee’s home is like paying 22p for a litre of diesel, so thanks to the new tax rates not only does it pay to switch as an employee, as an employer it pays to encourage employees to plug in at home with Mina. If your company is ready to start the move towards an EV fleet, we can help you to choose which employees/routes to switch to EV then manage employee’s energy suppliers.