Understanding the Tax Benefits of Ultra Low Emission Vehicles
The term ULEV (Ultra Low Emission Vehicle) has been around for some years now, often used by the Government to categorise those vehicles which gain preferential treatment for tax purposes.
While the definition of a ULEV has remained consistent; a vehicle that emits 75g CO2 or less for every kilometre that it travels, the tax treatment has changed considerably, so it’s worth taking some time to understand exactly how the various rules apply.
Company Car Benefit-in-Kind Tax
ULEVs currently fit into one of two Benefit-in-Kind tax bands; 0-50g/km or 51-75g/km CO2. For a petrol car, just sneaking under the 75g limit, the company car driver would be taxed at 19% in the 2019/20 tax year and those driving a car emitting 50g or less would be taxed at 16%. Drivers of diesels with the same CO2 emissions but that don’t meet the latest RDE2 standards face a 4% supplement to these rates.
From 2020/21 this regime changes to have, not two, but 11 bands, six of which only apply to cars with emissions of 50g/km or less and capable of travelling a certain distance on battery power alone.
Cars capable of doing this include Battery Electric Vehicles (BEVs) and Plug-in Hybrid Electric Vehicles (PHEVs), which attract varying levels of tax according to their battery only range. The tax bands start at zero percent for BEVs and PHEVs capable of more than 130 miles on battery power alone.
Above 50g/km the BiK tax bands increase by 1% for every extra 4g/km that the car produces. To complicate matters slightly, the tax bands also vary depending on whether vehicle is registered before or after 6th April 2020. The tables below show all of the tax bands for ULEVs up to the 2022/23 tax year.
ULEV Company Car BiK tax rates 2019-2023
The reduction in tax rates for the most efficient ULEVs appears very generous but it’s important to look at this in the context of the vehicles that are currently available in the UK. Obviously, the growing range of BEVs all benefit from the lowest possible tax band, but for drivers whose journey profiles don’t allow for the selection of a pure electric car the picture is a little less attractive.
Currently the plug-in hybrid vehicle with the longest battery-only range is the £139k Polestar 1, with a battery only range of 93 miles and CO2 emissions of 29g/km, which would incur a BiK tax rate of 5% from April 2020. Deliveries of the Polestar are not expected to begin before December 2019.
Following this come the Toyota Prius Plug-in and Hyundai Ioniq Plug-in with a battery-only range of 39 miles and emissions of 28g/km CO2 and 26g/km CO2 respectively, putting them both in the 12% BiK tax bracket from 2020. This represents a drop of just 4% from the 2019/20 tax year.
You can find more information on Company Car Tax here.
Optional Remuneration Arrangements
In 2017, the previous income tax and National Insurance benefits of car salary sacrifice schemes were removed as part of the Government’s crackdown on Optional Remuneration Arrangements (OpRAs). This change meant that the taxable value of the benefit provided is now fixed at the higher of the amount of cash forgone or the amount calculated under the previous BiK rules. The impact was also felt by drivers with the option of either a cash allowance or a company car.
ULEVs, however, were exempted from these changes meaning that vehicles emitting less than 75g/km CO2 suddenly became very popular with drivers in such schemes. Cars like Mitsubishi’s Outlander PHEV, the UK’s most popular plug-in car, took a significant slice of this market.
Fuel Benefit Tax
Electricity is not deemed to be a fuel by HMRC, meaning that the fuel benefit charge that applies to the provision of petrol and diesel for non-work-related journeys does not apply to electric charging. Drivers are, therefore, able to charge their company BEV or PHEV at the workplace and not be taxed for this benefit. Given the length of the average commute, this means that many drivers are able to complete these journeys entirely free of fuel costs.
In the Autumn Budget of 2017 the Government also announced that employees charging their own plug-in vehicles at the workplace would be exempt from BiK taxation from April 2018.
AFRs and AMAPs
Advisory Fuel Rates (AFRs) provide an amount that an employee can be reimbursed for business mileage when they purchase the fuel for their company car. These are an average figure, calculated on fuel type and engine size, that employers can use rather can maintaining precise records for each vehicle. Petrol-hybrids and diesel-hybrids use the rates applicable to their respective fuels.
The advisory electricity rate (AER) was first introduced in September 2018 for plug-in electric cars.
Approved Mileage Allowance Payments (AMAPs) are used to reimburse employees for business miles that they cover in their own vehicles. They provide the pence-per-mile rate that can be paid without the employee facing a BiK tax liability. The current AMAP rates are 45p per mile for the first 10,000 and 25p per mile thereafter. Unlike with AFRs, all types of alternative fuel vehicle are treated in the same way as traditional petrol and diesel cars for the purposes these reimbursements.
If you’d like to know more about ULEVs and alternative fuel vehicles you can visit our Alternative Fuel Vehicle hub.