Taxation of company cars
What is taxation of company cars? If you are an employee with a company car, you will be taxed on the benefit derived from the car being available for your private use. If you are an employer who makes company cars available to your employees, they will be taxed on the associated benefit. The amount that is charged to tax depends predominantly on the list price of the car and its appropriate percentage. There are some changes to the appropriate percentages for 2021/22.
You can find details of the appropriate percentages applying for 2021/22 here.
For 2020/21, it was possible to enjoy the benefit of an electric company car tax-free as the appropriate percentage for zero-emissions cars was set at 0%. The appropriate percentage for zero-emission cars is increased to 1% for 2021/22. Although a tax-free company car is no longer an option for 2021/22, an electric company car remains a very attractive benefit. The cash equivalent value (the amount on which tax is charged) for an electric car with a list price of £30,000 is only £300 for 2021/22, costing a higher rate taxpayer £120 in tax and a basic rate taxpayer £60 in tax. If you are an employer, your Class 1A National Insurance hit will be £41.40.
The way in which CO2 emissions are measured changed for cars first registered on or after 6 April 2020. From that date, the car’s CO2 emissions are determined using the Worldwide harmonised Light Vehicle Test Procedure (WLTP). For cars first registered prior to that date, the car’s CO2 emissions were determined in accordance with the New European Driving Cycle (NEDC).
For 2020/21, the appropriate percentage for cars first registered on or after 6 April 2020 (and whose CO2 emissions are determined using the WLTP), was two percentage points lower than that for cars first registered prior to 6 April 2020 (and whose CO2 emissions were determined using the NEDC).
The differential is reduced by one percentage point for 2021/22. This means that, subject to the maximum charge of 37%, the appropriate percentage for cars first registered on or after 6 April 2020 is one percentage point higher than its 2020/21 level. Thus, where the appropriate percentage was, say, 15% for 2020/21, it is 16% for 2021/22. The increase will mean that if you have a company car which was first registered on or after 6 April 2020, you will pay slightly more tax in 2021/22 than in 2020/21.
The diesel supplement remains at 4% for diesel cars not meeting the RDE2 emissions standard (subject to the maximum charge of 37%).
There is no change to the appropriate percentages for cars first registered prior to 6 April 2020. This means that if you have a company car that was registered before this date, your tax bill for 2021/22 will be the same as for 2020/21.
If you are thinking of changing your company car or making changes to your company car fleet, we can help you understand the associated tax costs: Pi Accountancy | Expert Business Advice | Gloucester & Swindon (pi-accountancy.co.uk)