ONE MILLION business drivers will benefit from a freeze on company car tax.
The Government announced a freeze on company car tax for fleet cars and the introduction of a zero Benefit-in-Kind rate for fully electric vehicles as part of its WLTP review.
Those with vehicles registered before 6 April 2020 will see company car tax bands being frozen at the 2020/21 rates until 2022/23.
Those registering new cars after 6 April 2020 will see a two-percentage point tax cut while all zero-emission company will pay no tax.
After the two-percentage point decrease in 2020/21, rates will then increase by one percentage point in 2021/22 and 2022/23.
The government also confirmed it will aim to announce appropriate percentages at least two years ahead of implementation to provide certainty for employers, employees and fleet operators
Existing VED rates will be maintained on introduction of WLTP from April 2020 while a call for evidence will be published later this year seeking views on moving towards a more dynamic approach to VED which recognises smaller changes in CO2 emissions
The changes do not affect the Lease Rental Restriction, Capital Allowances or any other CO2-related taxes and incentives but will include fuel benefit charge.
Ashley Barnett, head of fleet consultancy at Lex Autolease, said: “The lack of clarity on the long-term tax regime for company cars has severely hampered uptake, clearly reflected in the most recent car registration figures from the SMMT and the reduction in the number of people paying company car taxation.
“The Government’s announcement gives a degree of much-needed certainty to company car drivers and fleet managers.
“Coupled with the EV infrastructure announcement, it is a welcome sign of the Government’s commitment to stimulating company car uptake and getting newer, cleaner vehicles on the roads, a vital part of its Road to Zero strategy.
“It is really good to see that Benefit in Kind (BiK) will be 0% on EVs from April 2021 with this increasing by 1% to reach 2% in 2022-23 regardless of registration date.
“The freeze on BIK for vehicles under NEDCc at 2020-21 levels for two years is also welcome news for the fleet industry. This, coupled with RDE2-compliant diesel vehicles being exempt from the 4% diesel supplement, gives clear foresight for company car fleet decision makers.”
Claire Evans, head of fleet consultancy at Zenith, added: “It is especially pleasing that the electric rate has been reduced for electric cars to zero Benefit-in-Kind tax (BiK) in 2020 with a commitment to low tax rates for the following two years, which see a year-on-year 1% increase.
“No doubt with the ever-increasing releases of hybrid, plug-in and electric cars this commitment to lower tax will provide attractive cost options for perk company car drivers, particularly those paying higher rate tax, or for employees with the option to obtain a new, clean, cost-efficient car through a salary sacrifice car scheme.
“Whilst for some cars the move to WLTP may still result in a higher company car tax after the announced 2% reduction, it is important to remember that the cleanest RDE2 compliant diesels will also see a fall of 4%, meaning that clean diesel cars will see an overall reduction in company car tax from April 2020.
“Great news for businesses where diesel is still the most efficient option for drivers who complete higher mileages.”
Matthew Walters, head of consultancy and customer data services at LeasePlan UK said: “This is a milestone moment for the industry, as it is the first time company cars will pay no tax at all, following the announcement that zero emission vehicles, along with hybrids that have an all electric range of 130 miles, will have their taxes scrapped.
“We also welcome the clarity that this announcement has brought to the tax years of 2021/22 and 2022/33, as well as the notable reduced rate at which the increase will occur, by 1% per annum.
“Whilst the government is taking action, we are expecting higher CO2 figures on traditional fuels as we move to WLTP.
Alphabet GB Chief Commercial Officer Simon Carr said: “The Government response is a welcome reduction in the tax burden for most company car drivers.
“It recognises the important role that businesses and employees play in the transition to ultra-low and zero emission vehicles. From a fleet perspective, it adds a layer of complexity which decision makers will need to understand the operational impacts of prior to communicating with their employee community.”