Company Car Tax Spring 2020

A guide to the Spring 2020 Budget for fleet decision-makers

Alphabet (GB) Limited, Alphabet House, Summit Avenue, Farnborough, Hampshire, GU14 0FB. Tel: 0370 50 50 100. Registered office address: Alphabet House, Summit Avenue, Farnborough, Hampshire GU14 0FB. Registered in England and Wales 03282075. Alphabet (GB) Limited is authorised and regulated by the Financial Conduct Authority. Disclaimer: The information provided in this Guide is for general information purposes only and is correct to the best of our knowledge at the time of publication (March 2020). While we have made every effort to ensure the information in this document is accurate, neither Alphabet nor the author can be held responsible for any actions or consequences arising from acting on, or refraining from taking any action, as a result of reading this. You should seek your own independent financial advice in relation to any taxation or accounting matters referred to in this document. The values for fuel consumption, CO2 emissions and energy consumption shown were determined in a standardised test cycle according to the European Regulation (EC) 715/2007 in the version currently applicable and are for comparative purposes for vehicles fitted with standard wheel and tyre combinations. This allows a direct comparison between different models but may not represent the actual fuel consumption achieved in ‘real world’ driving. CO2 emissions can change if a different-sized alloy wheel is ordered with the vehicle. This may also lead to a change to the VED payable. More information is available at www.alphabet.co.uk and at www.vehicle-certification-agency.gov.uk. ALMAR232.1 Exp 13/03/2020

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IntroductionThe emphasis on zero-emissions electric power for road vehicles is gathering momentum fast, with Budget 2020 confirming that all zero-emission electric cars are exempt from company car tax in 2020/21.

The measure accompanies the mandatory use of Worldwide harmonised Light vehicle Test Procedure (WLTP) data for vehicle tax purposes from April 2020.

Phased in since September 2017, WLTP has radically changed

testing methods for car exhaust emissions and fuel consumption. It introduces a more demanding drive cycle during the homologation process, aimed at producing fuel economy and emissions data which is more representative of on-road driving. For businesses, it’s vital to understand how these changes apply to a vehicle fleet. In the UK the New European Drive Cycle (NEDC), which has been used to assess vehicles since 1992, ceases to be customer-facing from 01 April 2020 for Vehicle Excise Duty and 06 April 2020 for Benefit-in-Kind tax.

Following a consultation with fleet operators which concluded in early 2019, a new two-tier BIK tax system that switches to the new system based on WLTP CO2 figures becomes law from 06 April 2020. Two separate scales apply from that date – one for new cars registered from that date, and one for those already registered at that date.

This Alphabet Guide to Company Car Tax offers explanations and guidance to the new system, and covers in detail the other main announcements from the Spring 2020 Budget.

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Vehicle Excise DutyVehicle Excise Duty (VED) rates for 2020/21 are subject to a Retail Price Index-based rise, shown in the tables (right).

Diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standard are subject to increased first-year rates.

The Budget announced that zero-emission cars with a list price over £40,000 are exempt from the additional rate until 31 March 2025.

First-year rate: Applicable to all cars registered on or after 01 April 2018, with increased rates for non-RDE2-compliant diesels

Standard rate (yr2 onwards): £150 – cars with CO2 emissions of 1g/km or over with a list price of £40,000 or less

Additional rate (yr2 onwards): £475 – cars with CO2 emissions of 1g/km or over with a list price over £40,000

Vehicle Excise Duty: cars registered on or after 01 April 2018

2020/21CO2 First year rate First year rate Standard rate Additional rateemissions (compared for diesel cars (Yr2 on for cars (Yr2 on for cars(g/km) with (compared with with list price of with list price of 2019/20) 2019/20)1 £40,000 or less) over £40,000)2

0 £0 (+£0) £0 (+£0) £0 £0

1-50 £10 (+£0) £25 (+£0) £150 (+£5) £475 (+£10)

51-75 £25 (+£0) £110 (+£0) £150 (+£5) £475 (+£10)

76-90 £110 (+£0) £135 (+£5) £150 (+£5) £475 (+£10)

91-100 £135 (+£5) £155 (+£5) £150 (+£5) £475 (+£10)

101-110 £155 (+£5) £175 (+£5) £150 (+£5) £475 (+£10)

111-130 £175 (+£5) £215 (+£5) £150 (+£5) £475 (+£10)

131-150 £215 (+£5) £540 (+£10) £150 (+£5) £475 (+£10)

151-170 £540 (+£10) £870 (+£15) £150 (+£5) £475 (+£10)

171-190 £870 (+£15) £1,305 (+£25) £150 (+£5) £475 (+£10)

191-225 £1,305 (+£25) £1,850 (+£55) £150 (+£5) £475 (+£10)

226-255 £1,850 (+£35) £2,175 (+£40) £150 (+£5) £475 (+£10)

Over 255 £2,175 (+£40) £2,175 (+£40) £150 (+£5) £475 (+£10)1Applies to diesel vehicles that do not meet the Real Driving Emissions Step 2 (RDE2) standard. Alternative fuel vehicle, including hybrids, bioethanol and LPG, pay £140 a year. 2Cars with a list price over £40,000, except those with zero emissions, pay an additional rate of £325 a year on top of the standard rate for five years. 2020/21 rates apply from 01 April 2020

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Vehicle Excise Duty: rates for cars registered on or after 01 March 2001VED CO2 emissions 2020/21 standard rateband (g/km) (increment over 2019/20)

A Up to 100 £0 (+£0)

B 101-110 £20 (+£0)

C 111-120 £30 (+£0)

D 121-130 £130 (+£5)

E 131-140 £150 (+£5)

F 141-150 £165 (+£5)

G 151-165 £205 (+£5)

H 166-175 £240 (+£5)

I 176-185 £265 (+£5)

J 186-200 £305 (+£5)

K1 201-225 £330 (+£5)

L 226-255 £565 (+£10)

M Over 255 £580 (+£10)1 Figures in brackets show comparison with 2019/20. Includes cars emitting over 225g/km registered before 23 March 2006. 2020/21 rates apply from 01 April 2020

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Company Car Tax Click HERE for more on Company Car Tax

Company car Benefit-in-Kind (BIK) tax is based on a car’s P11D price and emissions of CO2. For cars with CO2 emissions of 1-50g/km, the number of miles they can cover with zero emissions has a significant bearing on tax liabilities.

From 06 April 2020, the way in which BIK tax is calculated undergoes substantial reform. Cars registered before 06 April 2020 are taxed according to the bands announced at the phase-in of WLTP in September 2017, with rates frozen until the end of 2022/23, as shown in the table (right).

Registrations after this date use WLTP CO2 figures, shown in the table on the next page, with the two tiers aligning in 2022/23,

For diesels that do not meet Real Driving Emissions Step 2 (RDE2) standards, a 4% tax charge applies, shown in brackets. In 2020/21, cars with zero CO2 emissions, such as battery-electric vehicles (BEV), are exempt from BIK tax regardless of their registration date.

CO2 emissions information for all cars is available from the Vehicle Certification Agency at www.vehicle-certification-agency.gov.uk.

Taxable percentages of P11D value: cars registered before 06 April 2020

2020 – 2023

CO2 Zero BIK % BIK % BIK %emissions emissions 2020/21 2021/22 2022/23(g/km) range1

0 All 0 1 2

1-50 Over 130 2 (6) 2 (6) 2 (6)

1-50 70-129 5 (9) 5 (9) 5 (9)

1-50 40-69 8 (12) 8 (12) 8 (12)

1-50 30-39 12 (16) 12 (16) 12 (16)

1-50 Up to 30 14 (18) 14 (18) 14 (18)

51-54 - 15 (19) 15 (19) 15 (19)

55-59 - 16 (20) 16 (20) 16 (20)

60-64 - 17 (21) 17 (21) 17 (21)

65-69 - 18 (22) 18 (22) 18 (22)

70-74 - 19 (23) 19 (23) 19 (23)

75-79 - 20 (24) 20 (24) 20 (24)

80-84 - 21 (25) 21 (25) 21 (25)

85-89 - 22 (26) 22 (26) 22 (26)

90-94 - 23 (27) 23 (27) 23 (27)

95-99 - 24 (28) 24 (28) 24 (28)

100-104 - 25 (29) 25 (29) 25 (29)

105-109 - 26 (30) 26 (30) 26 (30)

110-114 - 27 (31) 27 (31) 27 (31)

115-119 - 28 (32) 28 (32) 28 (32)

120-124 - 29 (33) 29 (33) 29 (33)

125-129 - 30 (34) 30 (34) 30 (34)

130-134 - 31 (35) 31 (35) 31 (35)

135-139 - 32 (36) 32 (36) 32 (36)

140-144 - 33 (37) 33 (37) 33 (37)

145-149 - 34 (37) 34 (37) 34 (37)

150-154 - 35 (37) 35 (37) 35 (37)

155-159 - 36 (37) 36 (37) 36 (37)

160+ - 37 (37) 37 (37) 37 (37)

Source: HMRC. Figures in brackets apply to diesels. Diesel hybrids and diesel cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt from the diesel tax charge. 1Measured in miles

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Company Car Tax (continued) Click HERE to return to previous page

BIK tax percentages for new cars first registered from 06 April 2020 are shown in the table (right).

Budget 2020 confirmed the 2022/23 rates will continue unchanged for tax years 2023/24 & 2024/25

Example: BIK tax calculation – new cars from 06 April 2020.A new BMW 118i M Sport 5dr first registered after 06 April 2020 has a P11D price of £26,965 and CO2 emissions of 139g/km, putting it in the 30% BIK band in 2020/21. £26,965 x 30% gives a taxable value of £8,090, equating to yearly BIK tax of £1,618 (£135/month) for a 20% tax payer, or £3,236 a year (£270/month) for a 40% tax payer.

Example: BIK tax calculation – new cars from 06 April 2020.A new BMW 330e Sport Pro Saloon first registered after 06 April 2020 has a P11D price of £39,210, electric range of up to 36 miles and CO2 emissions of 36g/km, putting it in the 10% BIK band in 2020/21. £39,210 x 10% gives a taxable value of £3,921, equating to yearly BIK tax of £784 (£65/month) for a 20% tax payer, or £1,568 a year (£131/month) for a 40% tax payer.

Taxable percentages of P11D value: cars first registered from 06 April 2020

2020 – 2023 CO2 Zero BIK % BIK % BIK %emissions emissions 2020/21 2021/22 2022/23(g/km) range1

0 All 0 1 (5) 2 (6)

1-50 Over 130 0 (4) 1 (5) 2 (6)

1-50 70-129 3 (7) 4 (8) 5 (9)

1-50 40-69 6 (10) 7 (11) 8 (12)

1-50 30-39 10 (14) 11 (15) 12 (16)

1-50 Up to 30 12 (16) 13 (17) 14 (18)

51-54 - 13 (17) 14 (18) 15 (19)

55-59 - 14 (18) 15 (19) 16 (20)

60-64 - 15 (19) 16 (20) 17 (21)

65-69 - 16 (20) 17 (21) 18 (22)

70-74 - 17 (21) 18 (22) 19 (23)

75-79 - 18 (22) 19 (23) 20 (24)

80-84 - 19 (23) 20 (24) 21 (25)

85-89 - 20 (24) 21 (25) 22 (26)

90-94 - 21 (25) 22 (26) 23 (27)

95-99 - 22 (26) 23 (27) 24 (28)

100-104 - 23 (27) 24 (28) 25 (29)

105-109 - 24 (28) 25 (29) 26 (30)

110-114 - 25 (29) 26 (30) 27 (31)

115-119 - 26 (30) 27 (31) 28 (32)

120-124 - 27 (31) 28 (32) 29 (33)

125-129 - 28 (32) 29 (33) 30 (34)

130-134 - 29 (33) 30 (34) 31 (35)

135-139 - 30 (34) 31 (35) 32 (36)

140-144 - 31 (35) 32 (36) 33 (37)

145-149 - 32 (36) 33 (37) 34 (37)

150-154 - 33 (37) 34 (37) 35 (37)

155-159 - 34 (37) 35 (37) 36 (37)

160-164 - 35 (37) 36 (37) 37 (37)

165-169 - 36 (37) 37 (37) 37 (37)

170+ - 37 (37) 37/(37) 37 (37)

Source: HMRC. Figures in brackets apply to diesels. Diesel hybrids and diesel cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt from the diesel tax charge. 1Measured in miles

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Capital AllowancesCompany cars bought outright are eligible for write-down allowances, where capital outlay can be offset against tax. The allowance threshold between the 18% main and 6% special rates is based on CO2 emissions, set at 110g/km in 2019/20. For cars with CO2 emissions of 51-110g/km, the allowance is 18% a year. For cars with CO2 emissions of 111g/km or more, it is 6%.

100% first year allowanceA 100% first-year capital allowance (FYA) applies only to cars with ultra-

low CO2 emissions. The threshold is set at 50g/km until 31 March 2021. From April 2021, the 100% FYA will apply only to zero-emission vehicles. The 18% WDA will apply to cars with CO2 emissions of 50g/km or less, with the 6% WDA applying to cars with CO2 emissions of 50g/km or more. Leasing companies are excluded from claiming the first-year allowance.

Zero-emission electric vans are eligible for a 100% FYA, joining all Ultra-Low Emission Vehicles (ULEVs) with CO2 emissions of 75g/km or less, until April 2021. All other vans are eligible for an 18% annual capital allowance.

Lease rental restrictionCompany car lease rentals can be offset against tax, with the CO2 emission threshold set as for main rate capital allowances at 110g/km. New cars with CO2 emissions of 110g/km or less are eligible for 100% of lease payments to be offset against tax. For those with CO2 emissions of 111g/km or more, only 85% is claimable.

From April 2021, the 50g/km threshold applies for determining lease rental restriction for hiring business cars for more than 45 consecutive days.

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Fuel AllowancesThe ‘free’ fuel benefitBIK tax is payable by drivers receiving employer-provided ‘free’ fuel for private mileage in a company car.

To calculate the tax due, the Government Fuel Benefit Charge (FBC) is used. For 2020/21, the FBC is set at £24,500 from 06 April 2020.

Example: calculating tax due on ‘free’ fuelA BMW 118i M Sport 5dr has WLTP-derived CO2 emissions of 139g/km giving a BIK tax percentage of 30% in 2020/21. Its WLTP combined fuel consumption is 46.3mpg.

£24,500 x 30% gives a taxable value of £7,350. Multiplying by the driver’s tax rate (20% or 40% in 2020/21) derives tax of £7,350 x 20% = £1,470, or £7,350 x 40% = £2,940.

With the average price of unleaded at £5.61/gal or £1.23/litre (March 2020), £1,470 will buy around 262 gallons (1,191 litres) for a 20% tax payer; at 40%, the figure is 524 gallons (2,382 litres).

Multiplying by the BMW 118i M Sport’s WLTP combined fuel consumption of 46.3mpg gives 12,130 miles for a 20% tax payer, or 24,261 miles at 40% – the minimum private mileages that make the fuel benefit worthwhile.

Business mileage, private carThe HMRC-approved mileage allowance payments (AMAPs) for business mileage reimbursement in a private car are shown below for 2020/21.

The rates are the tax and NIC-free amounts claimable per mile by a driver using his/her own car on business.

Mileage Allowance Payment (AMAP) rates 2020/21 Up to 10,000 miles Over 10,000 miles

All cars 45p 25p

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Class 1A NICClass 1A National Insurance Contributions are payable by the employer on the company car benefit, and employer-provided ‘free’ fuel for private use, charged at the rate of 13.8% of taxable value.

For the employer-provided ‘free’ fuel for private mileage calculation in 2020/21, the Government Fuel Benefit Charge (FBC) of £24,500 applies to the car’s taxable value from 06 April 2020.

Calculating Class 1A NIC – carsA BMW 118i M Sport 5dr, with a P11D price of £26,965 and WLTP CO2 emissions of 139g/km, attracts a tax charge of 30% of its P11D value in 2020/21.

£26,965 x 30% gives a taxable value of £8,090. Multiplying by 13.8% derives the annual Class 1A NIC contribution due – £1,116.

Calculating Class 1A NIC – ‘free’ fuelMultiplying the fuel benefit charge (FBC) figure of £24,500 by the BMW 118i M Sport 5dr’s 30% tax charge gives a taxable value of £7,350. Multiplying by 13.8% derives the annual Class 1A NIC due – £1,014.

For further information on Class 1A NIC on car and fuel benefits, click HERE.

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Commercial VehiclesCompany owned vans: BIK taxThe Van Benefit Charge (VBC) for drivers of company vans and ‘double-cab’ pick-ups using their vehicles for private mileage is set at £3,490 from 06 April 2020. From the same date, the VBC for fuel for private use is set at £666. Zero emission vans are exempt from BIK tax in 2020/21.

2020/21Annual BIK tax (ex fuel) £698.00/£1,396.00

Annual BIK tax (inc fuel) £831.20/£1,662.40

Figures shown for 20%/40% tax payers

Company owned vans: Vehicle Excise DutyVED rates for 2020/21 are shown below. The Government will introduce a new graduated CO2-based 2-category VED structure for vans from April 2021, with exact weight categories, CO2 bandings and rates announced once the impact of WLTP on the van market has been fully assessed. al

2020/21Euro 4 and 5 vans registered on or after 01 March 2001 £140

All other vans registered on or after 01 March 2001 £265

2020/21 rates apply from 01 April 2020

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Company owned vans: Class 1A NICAnnual Class 1A National Insurance Contributions for vans, including ‘double-cab’ pick-ups, are based on the Van Benefit Charge. The amounts due are calculated by multiplying the VBC by 13.8%, with the rates shown for 2020/21 shown in the table below.

2020/21Annual Class 1A NIC (ex fuel) £481.62

Annual Class 1A NIC (inc fuel) £573.53

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Plug-in Car GrantsThe Budget announced the provision of £403 million for the Plug-in Car Grant, extending it to 2022/23, and £129.5 million to extend Plug-in Grants to zero-emission vans, taxis and motorcycles.

£500 million over the next five years was also allocated to support the rollout of a fast-charging network for electric vehicles, including a Rapid Charging Fund to help businesses with the costs of installing high-power charging points.

The Government Plug-in Grant for ultra-low emissions vehicles is available to cars with zero emissions of CO2 and a purchase price

of £50,000* or less. The grant is a maximum of £3,000 per car, reduced from £3,500.

All ULEVs are eligible for the Electric Vehicle Homecharge Scheme (EVHS) grant, even if they don’t qualify for a Plug-in Grant. The EVHS covers up to 75% of the cost of installing a charge point at home, capped at £500 inc VAT. The grant reduces to £350 on 06 April 2020.

Enhanced Capital Allowances (ECAs) are also available for companies investing in electric vehicle charge points, with the allowance applicable until 31 March 2023.

Plug-in Grant-eligible cars: Cars with zero CO2 emissions priced under £50,000* receive a grant of up to £3,000.

Motorcycles: Motorcycles with CO2 emissions of 0g/km and a zero-emission range of at least 31 miles receive a grant of up to £1,500.

Vans: Vans with CO2 emissions of under 75g/km and a zero-emission range of at least 10 miles receive a grant of up to £8,000.

Go to www.gov.uk/government/organisations/office-for-low-emission-vehicles for further information.

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*For private, business, fleet or demonstration models the purchase price of the vehicle is the price paid by the customer, including discount, not the recommended retail price. Purchase price includes: number plates, vehicle excise duty, VAT and excludes any optional extras, delivery charges and first registration fee.