Our general advice on company cars has been to avoid them. When you are the owner/manager of a business the personal tax and National Insurance costs far outweigh any benefit and it made no financial sense to have a company car.
Well that advice is changing, but only if you are happy to have a fully electric vehicle or a hybrid car then there may be an opportunity here. If you are wedded to a vehicle that emits lots of Co2 then this is not for you but if you are happy to drive a lower emission vehicle read on
From 6 April 2020 the rules are being dramatically changed.
Below we give some examples of a fully electric vehicle. These are real world examples of cars that are available to buy now.
Fully Electric car - Tesla Model 3
This is a family saloon that the American manufacturer sells for anywhere between £38,500 to £60,000.
It is fully electric so emits zero emissions. This is great for two reasons. From 6 April 2020 it qualifies for a zero per cent company car benefit and you get tax relief in the company on the capital spend against the profits in the year you buy the car.
Now the benefit does increase to 1% of list price in 2021/2022 and 2% in 2022/2023 but that is very small compared to the up 38% that can apply to certain other petrol or diesel cars.
Final point to make is that the Budget is on 11 March 2020. It is possible the Chancellor could change the rules or other allowances so I would suggest waiting until after the Budget to make sure things are as expected. EDIT the government have suggested that the Budget may be delayed since the resignation of the previous Chancellor. Watch this space.
Tax example for a Tesla Model 3
The list price of the Tesla Model 3 ranges from £38,500 - £60,000. The list price when new is a key amount for company car taxation.
These things are all best to be shown in an example.
Personal Taxation
In the tax year starting 6 April 2020 (the 2020/2021) a zero emission vehicle, like the Tesla Model 3, will give rise to zero personal tax. Yes, we know that seems to good to be true but that is the truth.
For the 2021/2022 year a 1% benefit charge will apply. For a £38,500 list price car this will give a benefit charge of £385 with a tax charge at 40% of £154.00. For a £60,000 list price car the benefit charge is £600 with a tax charge of £240.
In the 2022/2023 the benefit charge is 2% so for a £38,500 car the benefit will be £770 with a tax charge of £308.00. For the £60,000 car the benefit is £1,200 with a tax charge of £480.
Company Taxes
National Insurance
The company has to pay National Insurance at 13.8% on the same benefit for personal tax. Well the great news is that the benefit is zero in 2020/2021 so there is no National Insurance.
In 2021/2022 the National insurance would be £53.13 on the £38,500 car and £82.80 on the £60,000 car.
In 2022/2023 the National Insurance would be £106.26 on the £38,500 car and £165.60 on the £60,000 car.
These amounts are relatively trivial.
Corporation Tax
The great tax saving comes from the saving that can be made against profits. Usually Company cars get tax relief at 18% per annum of list price, but a zero emission car gets immediate tax relief in the year of purchase so a saving of 19%. On a £38,500 car that is a saving of £7,315 and on a £60,000 car a saving of £11,400
Summary
The government are desperate to meet their emission target and one of the best ways of doing that is to change peoples behaviour. Now we would not suggest buying a new car to meet these new rules but if you are looking to buy a zero emission car and own your own company this is a great time to do it even if you have not had a company car before.
Now this is a generalised example so the impact on you may be different. If you are looking to buy a company car do get in touch with us and we can prepare a specific example for your own affairs and the type of car you are looking to buy.