April 6, 2020 the ‘critical’ tax date as fleet chiefs and drivers weigh up company car replacement schedules and powertrain choices

Company car benefit-in-kind tax calculations highlight the complexity facing fleet managers and drivers as to whether vehicles should be replaced before or after April 6, 2020 – and the critical powertrain choice to the decision-making process.

In simple terms when choosing a new company car: If opting for a 100% electric model then delay replacement until after April 6, 2020 as huge benefit-in-kind tax savings will be made; if selecting a plug-in hybrid vehicle then the decision-making is less clear-cut, although a small tax saving can be made after that date; if deciding to drive a petrol or diesel car then the tax bill will be higher if the vehicle is registered after April 6, 2020.

Calculations following the Government’s company car benefit-in-kind tax announcement outlining rates for the three years 2020/21, 2021/22 and 2022/23 and whether or not cars are first registered before or after April 6, 2020 – see http://www.fleetservicegb.co.uk/new-company-car-tax-regime/ – makes clear the importance of that date linked to the choice of fuel.

From April 6, 2020 company car benefit-in-kind tax is based on carbon dioxide (CO2) emissions as measured under the new Worldwide harmonised Light vehicles Test Procedure (WLTP), which replaces the long-established New European Driving Cycle (NEDC) test.

Adding further complexity, and with specific reference to diesel cars, is the availability – or currently lack of – models that meet the new Real Driving Emissions Step 2 (RDE2) standard.

However, inquiries to motor manufacturers reveal that many have yet to publish WLTP-derived CO2 figures thus making direct comparisons with current company car benefit-in-kind tax bills impossible, and only a handful of RDE2-compliant diesel cars are on the market.

Nevertheless, what is clear is that despite the Government reducing rates by two percentage points on most company cars first registered from April 6, 2020, the benefit-in-kind tax burden is likely to be higher after that date than before on petrol and diesel cars. That is because the rate reduction is not sufficient to wipe out the rise in CO2 emissions under WLTP testing versus the NEDC-correlated CO2 figure – an interim calculation pending full WLTP CO2 adoption.

The following examples for each key powertrains – 100% electric, plug-in hybrid, petrol and diesel – illustrate the dilemma facing fleet decision-makers and drivers.

100% electric

The Nissan leaf is the UK’s best-selling ‘pure’ electric car. Using the five-door 40k 150 Acenta auto model (P11D value: £31,440), which has a homologated WLTP driving range of 168 miles, as an example shows the benefit-in-kind tax saving potential of switching to 100% electric.

In 2019/20 the company car benefit-in-kind tax rate on the model – and all other zero emission models – is 16%. That means a basic rate (20%) taxpayer is paying £1,006 in company car benefit-in-kind tax and higher rate tax payers (40%) £2,012.

However, the Government’s ‘green’ agenda means that in in 2020/21, 2021/22 and 2022/23 – irrespective of whether a car is first registered before or after April 6, 2020 – the tax bill will be £0 next year rising to £63 (20% taxpayer) and £126 (40% taxpayer) in 2021/22 and £126 (20% taxpayer) and £252 (40% taxpayer) in 2022/23. That means in the three years 2020/21-2022/23 a basic rate taxpayer will pay company car benefit-in-kind tax on the model of just £189 and a higher rate taxpayer only £378 – an unprecedented low burden.

Kalyana Sivagnanam, managing director of Nissan Motor (GB) Ltd, said: “We welcome these latest tax changes, which will add a further financial incentive for company car drivers to switch to zero emissions fleet vehicles and help accelerate demand for electric cars.”

Plug-in hybrid electric

The best-selling plug-in hybrid electric vehicle is the Mitsubishi Outlander. Selecting the 2.4h Dynamic auto model (P11D value: £38,500) with a zero emission range of 28 miles and a current CO2 figure of 40g/km sees the model fall in to the 16% benefit-in-kind tax rate band in 2019/20. That means a tax bill of £1,232 for a basic rate taxpayer and £2,464 for a higher rate taxpayer. In 2020/21, 2021/22 and 2022/23 on cars first registered before April 6, 2020 the tax burden reduces to 14% meaning a bill of £1,078 for a basic rate taxpayer and £2,156 for a higher rate taxpayer.

However, benefit-in-kind tax on the same model – the WLTP CO2 emissions figure rises to 46g/km – first registered from April 6, 2020 and total savings of £231 (20% taxpayer) and £462 (40% taxpayer) can be made in 2020/21 and 2021/22 before equalising in 2022/23 with a model registered prior to April 6, 2020. In 202021 the car will fall into the 12% tax bracket (£924/1,848), rising to 13% in 2021/22 (£1,001/£2,002) and to 14% in 2022/23 (£1,078/£2,156).

Diesel

Diesel has been the powertrain of choice for fleets and company car drivers since the introduction of CO2-based benefit-in-kind tax almost 20 years ago.

Now facing a four percentage point benefit-in-kind tax penalty unless cars meet the WLTP-related RDE2 emission standard, which is not mandatory until January 2021, the issue for fleet decision-makers and company car drivers is that few such models are currently available.

While selecting an RDE2-compliant will generate a tax saving versus a non-compliant model, delaying vehicle replacement until after April 6, 2020 is likely to mean that a wider choice of RDE2-compliant models is available as they arrive in showrooms.

However, the impact of WLTP testing will almost certainly not be enough to wipe out a higher CO2 emissions figure on those cars registered post April 6, 2020 compared to those registered prior to that date. Therefore, even if choosing a new RDE2-compliant diesel model the sensible move could be to replace now and not wait until April 6, 2020.

The entry-level RDE2-compliant Vauxhall Astra five-door hatchback 1.5 105PS Turbo D six-speed manual has a CO2 figure of 95g/km, which in SE trim has a P11D value of £19,720. With the car in the 23% tax bracket in 2019/20 the tax charge is £907 (basic rate taxpayer) and £1,814 (higher rate taxpayer) rising to £947/£1,893 in the following three financial years as the model then drops into the 24% tax bracket.

Vauxhall provided provisional ‘range’ WLTP CO2 figures of 117-125g/km for the entry-level diesel engine. Assuming the same model/trim combination is registered after April 6, 2020 and the car sits at the bottom end of the ‘range’ it will fall into the 26% tax bracket in 2020/21 giving a tax charge of £1,025 (basic rate taxpayer) and £2,051 (higher rate taxpayer) rising to £1,065/£2,130 in 2021/22 as the model falls into the 27% tax bracket and £1,104/£2,209 in 2022/23 as the model then drops into the 28% tax bracket.

Therefore, taking delivery of the model prior to April 6, 2020 will in the tax years 2020/21, 2021/22 and 2022/23 deliver a tax saving of £353 (basic rate taxpayer) and £711 (higher rate taxpayer) versus a post-April 6, 2020 first registered model when WLTP CO2 figures are applied.

The Jaguar XF 163PS and 180PS diesel rear-wheel drive variants are among the first RDE2-compliant models to be launched.

The entry-level XF 2.0 four cylinder turbocharged 163PS Prestige diesel saloon (P11D value £34,725) has an NEDC-correlated CO2 emissions figure of 124g/km putting the model in the 28% benefit-in-kind tax bracket in 2019/20 giving a charge of £1,945 (basic rate taxpayer) and £3,889 (higher rate taxpayer). For a car registered prior to April 6, 2020 the tax burden rises to 29% in 2020/21-2022/23 giving a tax charge of £2,014 (basic rate taxpayer) and £4,028 (higher rate taxpayer). The previous non-RDE2-compliant model had CO2 emissions of 134g/km, which would have put it in the 34% benefit-in-kind tax bracket in 2019/20 rising to 35% in 2020/21-2022/23. However, Jaguar was unable to provide WLTP CO2 figures so benefit-in-kind tax bills on a model registered after April 6, 2020 cannot be calculated.

Audi has made its WLTP CO2 figures available and they clearly show the impact of the new emissions testing procedure on benefit-in-kind tax bills. For example, the entry-level A4 2.0 TDI 136PS S tronic Technik saloon (P11D value: £34,275) has an NEDC-correlated CO2 emissions figure of 103g/km that rises to 134g/km under WLTP testing for a standard specification model.

In 2019/20 the model falls into the 28% tax bracket giving a tax bill of £1.919/£3,838 before rising into the 29% tax bracket for the following three financial years giving an annual tax bill of £1,988/£3,976. However, Audi has yet to launch any RDE2-compliant cars so the model, if first registered after April 6, 2020, falls into the 33% tax bracket in 2020/21 giving a tax bill of £2,262/£4,524 rising to 34% in 2021/22 (£2,331/£4,661) and 35% in 2022/23 (£2,399/£4,798). That means over the three years 2020/21-2022/23 a basic rate taxpayer driver will pay an additional £1,028 in benefit-in-kind tax (£2,055 higher rate taxpayer) clearly showing the impact of the WLTP testing regime on CO2 emissions – and tax bills.

Petrol

Audi and Vauxhall are among very few vehicle manufacturers that were able to provide WLTP CO2 figures, despite the importance of the data for fleet decision-makers and company car drivers to calculate vehicle choices and the benefit-in-kind tax burden from April 6, 2020.

The Audi A4 saloon is a popular company car and the 2.0 TFSI 150PS S tronic Technik saloon (P11D value: £32,075) has an NEDC-correlated CO2 emissions figure of 126g/km that rises to 150g/km under WLTP testing for a standard specification model.

In 2019/20 the model falls into the 29% tax bracket giving a tax bill of £1,860/£3,721 before rising into the 30% tax bracket for the following three financial years giving an annual tax bill of £1,924£3,849.

However, due to the impact of WLTP, the model, if first registered after April 6, 2020, falls into the 33% tax bracket in 2020/21 giving a tax bill of £2,117/£4,234 rising to 34% in 2021/22 (£2,181/£4,362) and 35% in 2022/23 (£2,345/£4,490). That means over the three years 2020/21-2022/23 a basic rate taxpayer driver will pay an additional £771 in benefit-in-kind tax (£1,539 higher rate taxpayer) clearly showing the impact of the WLTP testing regime on CO2 emissions and thus tax bills and why it makes sense to, if possible, replace prior to April 6, 2020.

The new Vauxhall Astra 1.2 110PS model in SE trim has an NEDC-correlated CO2 emissions figure of 99g/km that rises to a ‘range’ of 119-126g/km depending on exact specification under WLTP testing.

In 2019/20 the model falls into the 23% tax bracket giving a tax bill of £860/£1,720 before rising into the 24% tax bracket for the following three financial years giving an annual tax bill of £898/£1,795.

However, due to the impact of WLTP, the model, if first registered after April 6, 2020 and assuming it has a CO2 emissions figure at the bottom end of the range, falls into the 26% tax bracket in 2020/21 giving a tax bill for that year of £972/£1,945. In 2021/22 the model will be in the 27% tax bracket and in 2022/23 the 28% tax bracket giving respective annual tax bills of £1,010/£2,019 and £1,047/£2,094.

That means over the three years 2020/21-2022/23 a basic rate taxpayer driver will pay an additional £335 in benefit-in-kind tax (£673 higher rate taxpayer) clearly showing the impact of the WLTP testing regime on CO2 emissions and thus tax bills.

Conclusion

Reviewing company car choice lists and profiling driver journey and mileage usage per individual is critical to arrive at the optimum vehicle and powertrain solution on a model-by-model, driver-by-driver basis.

Long gone are the days of a ‘blanket’ powertrain solution with a so-called ‘blended’ solution embracing 100% electric, plug-in hybrid, petrol and diesel almost certainly key.

However, rarely can a single date – April 6, 2020 – be so critical in the fleet calendar. To replace before or after that date alongside the powertrain choice could save, or cost, drivers hundreds of pounds a year in benefit-in-kind tax.

It should also be remembered that the CO2-related company car benefit-in-kind tax change will also impact on the fuel benefit charge if drivers are in receipt of employer-provided fuel for private journeys and employer Class 1A National Insurance contributions.

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