No company car tax for EVs in UK
Fleet drivers who choose an electric car will pay no company car tax in the UK during the next tax year, following new rules announced by the Government.
This zero rating for zero emission cars represents a dramatic fall from the current benefit charge applied to electric company cars. In this tax year, electric vehicles incur a benefit charge of 16% of their official price. Drivers then pay tax on this charge at their marginal rate of income tax, either 20% or 40%.
The new tax system will start next April and last for 12 months. The tax charge will then rise to 1% of a company car’s list price in 2021-22, and 2% in 2022-23. The same rates will also apply to hybrid electric vehicles capable of driving 130 miles in zero emission mode.
Company cars are cleaner
A statement from HMRC, the UK tax office, said: “The government recognises the value of the company car market in supporting the transition to zero emission technology. This is reflected in a higher proportion of company cars with zero emissions – compared to private registrations – and the high proportion of these that are subsequently supplied to the second-hand market after 3-4 years.
“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.”
Jay Parmar, BVRLA director of policy and membership, welcomed the Government’s recognition of how company cars can support the UK’s transition to zero emission technology.
And Claire Evans, head of fleet consultancy at Zenith, one of the UK’s leading leasing companies, said: “With the ever-increasing releases of hybrid, plug-in and electric cars this commitment to lower tax will provide attractive cost options for perk company car drivers, particularly those paying higher rate tax.”
New tax rules need to last longer
However, the ICFM which represents fleet managers, said the new tax rates need to be extended for much longer to meet fleet needs, given the lack of choice and shortage of availability of battery electric and plug-in hybrid vehicles.
Paul Hollick, ICFM chairman, said: “Plug-in vehicles – and particularly zero emission models – remain a very niche product and what availability there is does not meet fleet and company car driver requirements in the majority of cases.
“That will change over the next two or three years as more models from mainstream manufacturers become available. Therefore, the Government needed to incentive the take-up of zero emission and plug-in vehicles through the benefit-in-kind tax regime over a much longer period of time.”
He added that the newly announced measures may not be sufficient to reverse the trend that has seen employees opt out of company company cars and accept cash alternatives instead. The most recent official Government statistics reveal that the UK has lost 70,000 company cars in the past two years, as the tax rates for petrol and diesel cars have risen sharply.