April 6, the start of the 2018/19 tax year, signals a two percentage point rise in company car benefit-in-kind tax for models with carbon dioxide (CO2) emissions above 75g/km – rates for cars with emissions of 0-50g/km increase by four percentage points and those with emissions of 51-75g/km by three percentage points (see table below). It means, for example, that an employee driving a 120g/km petrol engined model will see their tax bill increase from 23% of the P11D value in 2017/18 to 25% in 2018/19.
What’s more, the current company car benefit-in-kind tax diesel supplement will increase from 3% to 4% at the same. As a result, employees driving diesel cars will experience a three percentage point tax hike. The supplement increase is estimated by the government to impact on 800,000 employees and is being applied to all diesel cars that are not certified to the Real Driving Emissions 2 standard; there are none currently available.
When HM Treasury announced the supplement increase in last November’s Budget it forecast that drivers of a BMW 3 Series (CO2 emissions 111-130g/km) would see tax bills rise in 2018/19 by £60 (basic rate taxpayer) and £120 (higher rate taxpayer), drivers of a BMW 6 Series (CO2 emissions 131-150g/km) by £125/250 and drivers of a Ford Focus (CO2 emissions 91-100g/km) by £43/£86.
An income tax rise in Scotland from April 6 means that company car drivers resident in the country face larger increases in benefit-in-kind tax rates than those in the rest of the UK in 2018/19.
The new income tax rates for Scotland compared with the rest of the UK add a further layer of administrations for businesses.
The Scottish Parliament is introducing significant changes to the structure of income tax. There will be a five-band regime, which contrasts with the three-band structure applicable in England, Northern Ireland and Wales.
In Scotland, the basic rate band is effectively being split into three – starter, basic and intermediate – to which is added the higher rate band and the top rate band. Applicable income tax rates are: 19%, 20%, 21%, 41% and 46%. It means that middle income – those earning £24,001 and above – and top earners face a 1% rise in income tax versus employees in the rest of the UK. Income tax rates for the remainder of the UK are: 20%, 40% and 45% depending on earnings.
As a result of the income tax increase, a majority of company car tax drivers’ resident in Scotland will face larger increases in benefit-in-kind tax than their counterparts in the rest of the UK as an employee’s tax rate is used in the calculation. Consequently, only a small number of company car driving employees on lower salaries are expected to escape the double hit of a benefit-in-kind tax rise and an income tax hike.
The government is from April 1 introducing a new Vehicle Excise Duty supplement on all new diesel cars first registered from that date.
It means that the First Year Rate of Vehicle Excise Duty will be calculated as if cars were in the band above. For example, a Ford Focus diesel (CO2 emissions 91-100g/km) will be subject to an additional £20 in the First Year, a Volkswagen Golf (CO2 emissions 111-130g/km) an additional £40, a Vauxhall Mokka (CO2 emissions 131-150g/km) £310 and a Land Rover Discovery (CO2 emissions 171-190g/km) £410, according to government figures (see table below).
As with the company car benefit-in-kind tax diesel supplement, the change will not apply to the next-generation of clean diesel engines – those with Real Driving Emissions Step 2 standard certification.
From April 1, Vehicle Excise Duty rates for cars, vans and motorcycles registered before April 2017 and the First Year Rates for cars registered after April 2017 increase in line with RPI.
The annual increase in car and van fuel benefit charges and the van benefit tax charge means that in 2018/19 the rates are:
- Car fuel benefit charge: £23,400 (2017/18: £22,600)
- Van benefit-in-kind tax charge: £3,350 (2017/18: £3,230)
- Van fuel benefit charge: £633 (£610)
The tax charge for zero-emission vans increases to 40% from 20% of the main rate in 2018/19.
CO2 emission thresholds for capital allowances on cars bought outright by companies will tighten from April 1. The new rates are:
- Vehicles up to 50g/km (reduced from 75g/km): Companies can write down the full cost against their taxable profits
- Vehicles emitting 51-110g/km (reduced from 130g/km): Companies can write down 18% of the cost of the car against their taxable profits each year, on a reducing balance basis
- Vehicle above 110g/km: Companies can write down 8% of the cost of the car against their taxable profits each year, on a reducing balance basis.
The 100% First Year Allowance threshold is reduced to 50g/km from 75g/km.
It follow that leasing companies, which are ineligible to claim 100% first-year writing down allowances on cars, will be restricted to 18% (0-110g/km) and 8% (from 111g/km) on a reducing balance basis.
The CO2 threshold for the 15% lease rental restriction is linked to the threshold for capital allowances for business cars, so the rate will be reduced from 130g/km to 110g/km from April 2018. It means that companies that lease can only deduct 85% of any rental payments against their taxable profits on cars with emissions above the threshold.
- Chancellor of the Exchequer Philip Hammond’s first Spring Statement on Tuesday, March 13 was an update on the health of the UK economy and the state of the government’s finances, rather than laying out any major new tax or spending announcements. However, Mr Hammond did mention towards the end of the Statement that he would “help the great British white van driver go green” by holding a consultation on reduced Vehicle Excise Duty rates for the “cleanest vans”. It is anticipated that the consultation document will be published shortly by HM Treasury.
Company car tax 2017/18 to 2020/21
|% of P11D||2017/18||2018/19||2019/20||2020/21|
|Price||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)/electric mileage range|
|2||N/A||N/A||N/A||0-50 (zero emission or 130 miles+)|
|5||N/A||N/A||N/A||1-50 (70-129 miles)|
|8||N/A||N/A||N/A||1-50 (40-69 miles)|
|12||N/A||N/A||N/A||1-50 (30-39 miles)|
|14||N/A||N/A||N/A||1-50 (under 30 miles)|
- From April 6, 2018 for each tax year add 4% for diesel cars up to a maximum of 37%. Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt.
VED for cars first registered on or after April 1, 2018
|Emissions (g/km) of CO2||First year rate||Standard rate*||First Year rate diesel cars|
*Cars with a list price above £40,000 pay a £310 supplement for five years. After the five-year period the vehicle will be taxed at the applicable standard rate.
NB: Alternative fuel discount 2018/19 £10 for all cars, applicable to first year rate and standard rate.