While tax policy might be used to obtain revenue, it is also in place to change behaviours. Company car tax rules are one example of this, whereby there is a high tax on those cars that have high emissions while it rewards those who choose to drive low emission vehicles or even electric cars.
Tax and Emissions
Should an employee have a company car that they can use for personal use, they will be taxed on the benefit that this offers. The amount that they are taxed is a percentage of the list price of the vehicle as well as any optional accessories they might choose. This amount is determined by the capital contributions that the employee makes which has a limit of £5,000 as well as periods when the care was not available and payments that are made for private use.
However, the percentage is mainly determined by the emissions of the vehicle and those vehicles that have lower emissions will have a lower charge. For both 2020/21 and 2021/22, this will be dependent on whether the vehicle was registered prior to 6 April 2020 or after it. How emissions were measured altered for those cars that were registered on or after 6 April 2020, although the rates will be the same from 6 April 2022.
The range of an electric vehicle will have an impact on the emissions and those that have a larger range will have a lower percentage. The range is determined by the distance that an electric vehicle can travel off one single charge. For diesel cars, there is a supplement of 4% for those that do not meet the RDE2 emissions standard although this is limited to 37%.
What About 2022/23?
In 2022/23, the percentage for cars that have zero emissions and those cars that fall into the 1-50g/km band and have an electric range of over 130 miles will have a percentage of 2%. Those cars that fall into the 160g/km band will have a percentage of 37%. For those diesel cars that do not meet the RDE standard and have emissions of more than 145g/km will also have a maximum of 37% applied.
It is no longer possible to take advantage of a tax-free electric vehicle although the charge is low as it is 2% of the list price. So, for someone who owns a £30,000 electric car and is paying basic rate tax, they will only need to pay £120 in tax for the year. For someone paying the higher rate, they will pay £240. Should a fully electric car not be possible, then they can still achieve the same outcome by choosing a vehicle that has emissions in the 1-50g/km band and an electric range of 130 miles.
So, the percentages in place for 2022/23 will remain fixed until 2025 and that means that electric vehicles and low emission cars are still tax-efficient for the time being.