The number of company car drivers in the UK has remained stable at around one million for many years, and despite some changes to the system for taxation it seems to be a trend which is likely to continue. However, news from HMRC represents a double edged sword; bringing refreshing news for zero emissions drivers, but a raft of painful tax increases for fossil fueled vehicles.
‘Benefit in Kind’ tax, which is payable by employees who receive benefits on top of their usual salary, for example a company car which is also available for private use.
Understanding Benefit in Kind Taxation
The calculation of Benefit in Kind taxation can seem highly complex, the figures are mostly based on the CO2 emissions produced by the vehicle with the amount of CO2 produced per kilometre fitting into individual bands based on emission ranges. The amount paid by the individual is then determined by the list price of the car, combined with the employees personal tax rate.
So for example the method for calculating the tax paid is as follows, here we will presume the purchase of a 3 Series BMW with a cost price of £30,000 and an emissions rate of 124g/Km CO2 for a higher rate tax payer:
| Company Car List price | £30,000 |
| Multiply by the tax rate(120-124g/Km band) | 28% |
| Multiple by your personal tax rate | 40% |
| Annual Tax payment | £3,360 |
This is an additional tax bill of almost £300 deducted from your pay packet every month, and this is for a relatively mid-range vehicle. It is not inconceivable to have a monthly tax bill of over £1,000 and the average fees for executive drivers is over £600 per month. £600 per month which could be saved instantly by switching to an electric vehicle.
Considering The Environmental Impact of Motoring
Of course, as you would expect, with the environmental focus which is on the table the benefit in kind figures are mooted to increase for everything other than low and zero emissions vehicles.
The announcement from HMRC is encouraging for electric vehicle drivers as the new benefit in kind rates for zero emission vehicles is 0%, reduced from 16% in the current tax year.
This reduction marks a major drive to encourage zero emission fleets. As part of the announcement of the new benefit in kind rates the Government have stated that they “recognised the value of the company car market in supporting the transition to zero emission technology… By providing clarity of future appropriate percentages, businesses will have the ability to make more informed decisions about how they make the transition to zero emission fleets.”
The overall trend is that there are more electric vehicles within company fleets rather than domestically and the government is looking to this sizable market to encourage the take up of low and zero emission vehicles.
Forecasting The Future
With vehicle emissions being a major source of low level pollution has been seen to be a major area for discussion on the hustings.
Overall, whether it is ten, twenty-five or thirty years away it is clear that there is a major drive to a zero emission environment. Whereas it cannot happen overnight the obvious path is for Government to load tax on higher emissions vehicles, to both satisfy their environmental promises and recoup the reduction of tax revenue from the zero emission drivers.
It is clear that the money to support funding incentives for zero emissions vehicles has to come from somewhere, and there have been a lot of election promises which are putting demands on the collective kitty. It does not take an economic genius to guess that the rates for higher emission vehicles will therefore increase exponentially in Benefit in Kind as well as road tax, emissions charging, fuel excise and whatever new taxation they feel they can introduce to appease public opinion when it comes to environmental matters.
The Bottom Line
For the foreseeable future you will need no crystal ball to tell you what will happen to drivers of mid and higher range emission vehicles. There will be an overall increase in costs, up to 37% in Benefit in Kind and it is unlikely to stop there.
Let’s put this into perspective with the cost of running both a petrol and electric vehicle for one month in Central London.
| Petrol | EV | |
| Benefit in Kind | £600 | £0 |
| Low Emissions Zone Charging | £720 | £0 |
| Congestion Charge | £345 | £0 |
| Vehicle Excise Fund | £180 | £0 |
| Fuel1,000 miles driven on average costs | £410 | £20 |
| Average Monthly Cost | £2,255 | £20 |
That is a shocking reduction of £2,235 per month or £26,820 per year in costs. You may feel this is an extreme example and that there are lower costs outside of London, however the model shows that, however you drive, if it is not electric you will be paying more today and you will continue to pay more and more as we approach a zero emissions future.
It is no doubt that there is a war on motorists from both the government and environmentalists. Through no fault of drivers who have been brought up with fossil fueled vehicles and for whom there has not been a credible alternative. However the best advice is for both drivers and fleet managers is to change to electric now!
We are at a stage where there are grants available for the purchase of vehicles and the installation of charging infrastructure, there are clear benefits in terms of costs and taxes as well as the obvious cost savings to be made for refueling and running costs.
If you are looking at purchasing a new company car you would be foolish to not consider the benefits of electric.
For more information please contact us on 0141 280 8890 or at info@britetechnicalservices.co.uk