How to Stay Safe from HMRC
2 September 13 | By: Jas Jhooty
Solely electrically powered cars are at last becoming a realistic alternative to the traditional diesel, petrol or hybrid powered company cars that employers tend to lease or purchase for their employees. With practical new models such as the Renault Zoe and the Nissan Leaf having come out this year, the government are trying to increase the take-up of electric cars by offering incentives like: -
Despite these incentives there remain some very real challenges that will affect the expected take up of electrically powered cars. These include: -
These limitations will gradually diminish over time with improved battery technology combined with a national roll-out of rapid recharge points. However the government has already announced their intentions to roll back their generous subsidies.
The longer term impact
It has been announced that from 2015/16 purely electric cars will be subject to a company car benefit based on 5% of the list price, rising to 7% of list price in 2016/17.
The list price of electric cars will be based on the pre £5,000 grant price and will have to include any battery rental charges. Manufacturers tend to lease you the battery so that it can be replaced with a new one when the original battery wears out.
For your information, an electric car’s battery in no different to the one you find in your mobile phone or your laptop, only it is many, many times bigger. Most of us have already experienced this problem i.e. when an older mobile phone or laptop fails to keep the same charge it used to be able to when it was new.
This means that the benefit-in-kind figure will rise sharply over the next 4 years. E.g. for a typical electrically powered company car costing £28,000 (inclusive of battery rental)
Comparison to Ultra-low emission cars
These are usually hybrid cars consisting of an electric motor coupled with either a petrol or diesel engine emitting no more than 75 g/km of CO2. There is currently a 5% charge for these petrol hybrid vehicles with a 3% additional supplement for diesel hybrid vehicles.
However from 2015/16 a new banding of 51-75 g/km of CO2 will come into force. The appropriate percentage for the 0-50 g/km CO2 band will be 5% in 2015-16, and 7% in 2016-17. The appropriate percentage for the 51-75 g/km CO2 band will be 9% in 2015-16 and 11% in 2016-17.
The 3% additional supplement for diesel remains until 2016/17 when it will be removed.
Example of an Ultra-low petrol hybrid car
Petrol engines tend to have higher CO2 emissions than their diesel counterparts so they will tend to fall into the over 50 g/km of CO2 category. The following shows the benefit-in-kind position of a £28,000 petrol hybrid car, emitting 70 g/km of CO2, over the next 4 years: -
Example of an Ultra-low diesel hybrid car
The following shows the benefit-in-kind position of a £28,000 diesel hybrid car, emitting 49g/km of CO2, over the next 4 years: -
The pros and cons of choosing your next company car are complex. Electric cars may still be an attractive proposition tax wise over the next three years. However early adopters have to balance the current tax advantages against the very real “range anxiety” that will be ever present until an effective infrastructure is put into place.
Currently someone planning to drive from Manchester to London in an electric car will have to spend over 24 hours making this trip after allowing for 8 hour stops to recharge their vehicle. Thus means that electric cars are only currently suitable for relatively short commuting journeys and the driver must remember to recharge their electric car every night.
Whatever you decide it is reassuring to know that in a few years’ time, the more practical ultra-low diesel hybrid car will cost you the same in tax as a purely electric vehicle without you having to suffer any accompanying “range anxiety” issues.
How emTax can help
For more help in deciding what type of cars your future company car fleet should consist of, please do not hesitate to contact us. Our consultants can undertake a review of your current company car scheme and offer alternative arrangements where dramatic savings can be made.
We can undertake a holistic whole life cost model of a snapshot of your current company car provisioning. Real life costs of acquisition/leasing, maintenance, insurance, fuel etc. will be considered along with the tax, VAT & Class 1A NIC costs. From here, recommendations will be made which in some cases have been found on average could save up to £1,000 per car per year.
These recommendations can include: –
New HMRC Advisory Fuel rates
Finally the latest HMRC Advisory Fuel rates have just been published and can be found here.