Company car costs to increase with new emissions charges

Changes to company car charges due in 2018/19 and 2019/20 will lead to increased costs, particularly for drivers of low-emission vehicles.

There will be increases in the charges that are applied to a car’s list price to calculate the taxable benefit of having a company car:

CO2 emissions g/km 2017/18 2018/19 2019/20
0-50 9% 13% 16%
51-75 13% 16% 19%
76-94 17% 19% 22%
95-99 18% 20% 23%

For cars with CO2 emissions of 95g/km and above, the percentage is increased by 1% for each additional 5g/km of emissions. For example, in 2018/19 the relevant percentage charge for a car with CO2 emissions of 119g/km would be 24%. The charge is capped at a maximum of 37%.

To take a specific example, the Audi A4 is widely used as a company car. For 2017/18 the tax on a 3.0-litre diesel engine A4 with a list price of £37,480 For a 40% taxpayer would be £315 a month. Next year, the monthly cost will be £353 and by 2019/20 it will be £391.

Not too long ago, drivers of company cars with zero emissions did not suffer any tax charge, but they are now going to see their current 9% charge increase by nearly 80% over the next couple of years.

You can check your car benefit for the current tax year using HMRC’s calculator:

From 6 April 2020, the electric range of a car will also be a factor in determining the percentage charge for cars with CO2 emissions of 1-50g/km, with a very favourable tax charge if a car can travel a high distance on just electric power. A 2% charge will apply for cars that can only be driven in zero-emission mode.

Diesel cars

Diesel company cars are subject to a 3% surcharge for 2017/18, although the percentage charge is still subject to the 37% maximum. For example, a diesel car with CO2 emissions of 119g/km will have a percentage charge of 25% (22% + 3%). The surcharge does not apply to diesel hybrids.

From 2018/19, the diesel surcharge will increase to 4%, although it will not apply to diesel hybrids (as now) or diesel cars that are certified to the Real Driving Emissions 2 (RDE2) standard. Sadly there are no qualifying RDE2 diesels currently for sale and there are unlikely to be any for the next 12 to 18 months.

What to do now?

The increasing tax costs make vehicle selection more important than ever, whether you are an employee selecting your next company car or are responsible for your company’s car fleet.

  • Modern hybrid cars generally have much lower CO2 emissions rates compared with petrol and diesel variants.
  • Employees should consider the advantages of contributing towards the cost of a company car if it means that you can have one with much lower emissions. Up to £5,000 can be deducted from a car’s list price for the purpose of calculating benefits.

If you are reviewing your company car arrangements and would like some advice, please get in touch with us.

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 15 January 2018.

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