MANY SME businesses may have been put off the idea of taking a company car for the directors of the business. Or for providing them to employees for their job function, or as part of their remuneration.
The reason?
Company car tax – or benefit in kind taxation – has become an increasingly excessive drain on monthly salaries. Not to mention the rising impact on Class 1A National Insurance contributions paid by an employer.
But from April 06, 2020, there are significant changes to company car tax that are worth exploring.
For example, drivers of battery electric vehicles will only pay…well, nothing! Zip. Zero. No tax.
Meanwhile plug-in electric hybrids (PHEVs) will only pay between 0 and 12% tax depending on CO2 emissions and the mileage that can be travelled in electric only mode.
It means that choosing one of these cars can not only help with cleaner air, but significantly impact overall costs – personal and business.
Company car tax – how does it work?
Drivers pay tax on a company car because it is deemed a benefit by HMRC.
Company car tax is worked out based on the P11D value of a car (its list price including extras, minus first registration fee and road tax), the CO2 emissions of the car, and the distance it can travel in zero emission mode, based on a percentage scale.
A good rule of thumb is this: the lower the CO2 emissions, the lower the company car tax. And, as we’ve just said, for cars with zero emissions the driver pays no tax at all.
So, here are five reasons why it’s a good idea to take a business lease right now.
1 Don’t pay benefit in kind tax with a zero emission car
This has to be the number one attraction to taking a business contract hire lease. You can drive a company car and pay no benefit in kind tax. To do this you need to drive a battery electric vehicle (such as the Tesla Model 3) or perhaps a fuel cell electric vehicle such at the Toyota Mirai should you live close to a hydrogen fuelling station and it makes sense for you.
For 2020/21 there is no company car tax on zero emission cars; from 2021/22 the tax is 1%; and in 2022/23 the tax is 2%. Take a business contract hire lease over three years and pay virtually nothing for the benefit of the car.
If you are already in a company car, swap to a zero emission vehicle if you can – and give yourself a massive pay rise.
2 Big benefit in kind tax discounts on PHEVs
If leasing a full electric car isn’t the right answer for your business or your employees, how about a plug-in electric vehicle – a PHEV?
These are a halfway house between today’s cars and full electric cars. The idea is that you have a small battery that can be used to improve fuel economy or provide zero emission miles. But because of the engine, there is no range anxiety.
For many people, it could mean you could drive to work and back on a single charge.
Company car tax for PHEVs is based on a combination of CO2 emissions and how far they can run on the battery.
For example the BMW 3 Series Saloon 330e M Sport has CO2 of 32 – 37 g/km (depending on exact specification) and an electric only range of 34 ? 36 miles. That means a benefit in kind of just 10% in 2020/21.
The BMW 330e was recently named Best Plug-in Hybrid Car and Best Executive Car at the What Car? Awards 2020. If you want to explore our range of BMW 3 Series business car leases and for special offers please call the CBVC Sales Team on 01283 351200 or email sales@cbvc.co.uk
3 Leasing an ultra low emission car is tax efficient for the business
A zero emission, or an ultra low emission vehicle, is not only tax efficient personally, it is also highly tax efficient for the business. That’s because the full 100% of the lease cost can be set against a company’s taxable profits.
Are you getting the idea that this sort of business car leasing is a good idea? Excellent.
4 Business contract hire is also highly VAT efficient
Wait, there’s more good news to come on taxation. Not only can you claim the whole monthly rental against tax but 50% of the VAT on the monthly rental can also be claimed, reducing your company’s VAT liability.
5 Going green lowers operating costs
Finally, while the business contract rental of an electric vehicle tends to be higher than an ordinary petrol or diesel vehicle, it’s important to remember the overall cost of running the electric vehicle during the lease period.
Electric vehicles cost very little to run. A battery electric vehicle costs about £8.40 to fully charge at home, according to EV charge point suppliers Pod Point. As there are few moving parts to go wrong, service costs are lower, too.
A PHEV will cost less to charge at home because the charging time is shorter and the battery smaller. But if your work is within commuting distance, you can see those monthly fuel bills reducing when making full use of the car’s zero emission capability.
One other plus point of driving a battery electric vehicle is that you can claim business mileage at 4p per mile. As HMRC does not recognise electricity as a fuel, there is no car fuel benefit tax payable.
Finally, before you choose a business lease
Please talk to us so we can provide the right advice and guidance. Going green is a really positive step and for many businesses the transition to ultra low emission motoring is an easy one.
But there are some obstacles that need to be overcome – such as driver suitability, and charging facilities – that are never insurmountable, but need consideration.
So call us on 01283 351200 or email us on sales@cbvc.co.uk and we will be delighted to help you on your way to greener motoring. And some impressive tax savings with business contract hire.
