Low emission cars equal lower tax bills
Company car drivers should choose new cars with as low vehicle emissions as possible if they want to keep their tax bills down, as the tax regime is set for a number of rises over the next three or four years.
As a general rule of thumb, the lower the emissions that a vehicle emits, the lower the tax bills associated with it, and low emission cars should be the automatic choice for fleets and drivers alike to try and keep tax charges down.
If it’s a company car, then the charges relate to Benefit-in-Kind tax for the driver and Class 1A National Insurance contributions for the employer. Benefit-in-Kind tax on company cars, which is linked to the vehicle’s carbon dioxide emissions, is set to rise by 9% over the next four years, so there is a real need to choose wisely.
At the same time, both company and private cars attract Vehicle Excise Duty, again in relation to their emissions. Currently, VED is as low as £20 per annum for cars emitting 01-110g/km of CO2 and as high as £505 for cars emitting more than 255g/km of CO2.
However, this is set to change from April 2017, when a new flat rate for all existing cars of £140 per year will be introduced. But, for new cars, the VED in the first year will vary from £10 per year for cars emitting 1-50g/km of CO2 to £2,000 for cars emitting more than 255g/km.
And vehicles worth over £40,000 will attract an additional “premium” VED surcharge of £310 a year – making £450 in total – for the first five years.
VED bands and rates for cars first registered on or after April 1 2017
|CO2 emissions (g/km)||First year rate||Standard rate|
If in doubt, think low emissions
Given the complexity of the current tax rules, drivers and their employers should plan carefully for the future by selecting cars with vehicle emissions as low as possible.
Drivers of diesel cars, which generally emit the lowest levels of CO2 but the highest levels of other pollutants such as particulates and nitrogen oxide (NOx), have long been penalised by a 3% Benefit-in-Kind tax surcharge.
The Government had announced that this surcharge was set to disappear from April next year, putting petrol and diesel car emissions on a level playing field for tax purposes for the first time in more than a decade.
However, in the recent Autumn Statement and Spending Review, the Chancellor, George Osborne, announced that the Government had changed its mind about abolishing the 3% diesel surcharge next year and had delayed doing so until 2021.
The Chancellor said he had decided to postpone the move for a further five years “in light of the slower-than-expected introduction of more rigorous EU emissions testing”.
Recent events have changed the perception of diesel vehicle emissions, not least over the levels of NOx they produce, and more rigorous emissions tests are now being considered across the European Union.
These will incorporate real-life conditions on open roads rather than under test centre or laboratory conditions and are designed to achieve a truer picture of a vehicle’s pollution levels.
Company car drivers face higher bills
The Chancellor’s diesel surcharge U-turn is expected to raise an additional £1.36bn for the Treasury over the next five years.
However, its other major effect is to leave company car drivers facing higher-than-expected tax bills from next April.
Its delayed removal is a blow for those company car drivers who have chosen diesel vehicles this year with the expectation that the supplement would be lifted next April, and their tax bills would fall as a result.
Now they face higher tax charges that they may not have budgeted for.
The new move means that the scale charge for diesel cars will now be 3% higher from next April, starting at 10% for cars emitting CO2 emissions of 1-50g/km and rising to a maximum of 37% for cars emitting 185g/km and above.
What to do next?
The forthcoming tax changes mean that companies and their drivers need to carefully consider the right combination of factors that best meet their needs. And one of the first ports of call should be their fleet management provider.
Talk to your adviser about the best mix of vehicles for your fleet from both tax efficiency and suitability of purpose points of view.
Companies should look to specify fleet policies with vehicle emission levels as low as possible, as well as looking at introducing special ‘green’ variants for each grade of the car policy, such as hybrids or other ultra-low emission vehicles.
There are now far more models to choose from as carbon emission levels continue to come down from all the vehicle manufacturers, and this is a trend that will only increase over time.
By making the right vehicle choices now, fleet decision-makers can help make cost savings running into several thousand pounds over the typical four year life of a vehicle.
If you would like more information about vehicle emissions tax and how to select the most appropriate low emission cars, then please get in touch.