Do you pay Company Car Tax? or do you manage a Company Car Fleet?

Mark TillotsonJuly 24, 2020

The new Company Car Tax nightmare and how to beat it.

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Are you a company car driver? If so, to say that 2020 has been a challenge would be an understatement, and on top of that, we are seeing company car tax benefit in kind (BIK) costs spiraling wildly out of control; or are they?

It’s no secret that year on year we see small increases in the costs associated with running a company car. This year more than others we have seen phenomenal changes to company car tax that is leaving many people confused and unsure where to turn. Drivers are struggling to justify the costs associated with replacing their company vehicle.

This is because lots of drivers with a pre-April 2020 registered vehicle may be blissfully unaware of what is round the corner when their car is due to be replaced. Many drivers due to replace their cars are tirelessly searching through various makes and models, in the hope of finding a new car that will not cost them a small fortune in BIK costs. But are they potentially looking at the wrong cars?

What has changed and why? – Let’s have a look at the impacts of WLTP & RDE2 (Euro 6d)

April 2020 marked significant changes in the motor industry. The main change was how cars are tested on emissions and fuel economy. This is part of the worldwide push to go green and help save our environment as well as the air we all breathe.

WLTP, which means Worldwide Harmonised Light Vehicle Test Procedure replaces the outgoing NEDC (New European Driving Cycle) emissions testing. NEDC was last updated way back in 1997. As I am sure you will agree, technology and science has evolved a significant amount over the last few decades. WLTP is a newer, much more in-depth and truer to a real life way of testing vehicles. You can read more about WLTP facts here.

WLTP Test – Company Car Tax

Historically, under previous NEDC testing, cars were driven for much short periods of time. Mainly under lab conditions and using wind tunnels at precise speeds and rev ranges. Manufacturers developed the cars to yield the best possible emissions results on paper. This made the cars look environmentally friendly even when this seemingly wasn’t the case. Think 2015 and the whole #dieselgate debacle. WLTP aims to combat this and bring the test more in line with real world driving conditions.

In the real world, none of us drive our cars in laboratory settings and wind tunnels. We accelerate on slip roads and put our foot down while going uphill just as frequently as we start and stop in and around town. WLTP testing covers a wide range of driving styles. Cars are tested for longer, under different conditions with various engine loads. This gives a much truer indication of the actual CO2 emissions and more realistic fuel economy figures.

NOx – Company Car Tax

In addition to WLTP we have also seen an introduction of something known as RDE2 (Real Driving Emissions Step 2). This is mainly aimed at diesel cars with a focus on nitrogen oxide emissions also abbreviated as (NOx).

From January 2021, it will become mandatory that all cars on sale must be RDE2 (Euro 6d) compliant. This means that as manufacturers are releasing new cars, they are being developed to meet these new standards. This costs extra time and money in research and development as well as increased production costs. Any increases would then be passed onto the customer in higher retail prices. Lots of cars currently produced do not meet the minimum requirements, so they are being gradually phased out in the run up to the deadline.

So, what does this mean for company car drivers?

Company car tax BIK costs have increased dramatically on nearly all new cars.  Under WLTP, a car registered from April 2020 onwards would have a different CO2 output than a car that was registered before this date.  This is comparing the exact same car, not a different model year or face-lift;  literally the same physical car. 

You can check what CO2 level your vehicle is by looking at the cars V5C registration document if it’s already registered.
You can also visit the government website at https://www.gov.uk/co2-and-vehicle-tax-tools. Please remember that a vehicles CO2 figures stay with the car for its lifetime.

With the increase in CO2 comes an increase in the “On the road” purchase price of a car. This is because a higher CO2 level means a higher first year’s road fund licence which could be a significant amount of money. Let’s look at a 2020 Mercedes E220 Diesel AMG Line Edition Automatic Saloon as an example.

2020 Pre 1st April CO2 127 g/km £170 1st Year Road Fund Licence
2020 Post 1st April CO2 162 g/km £540 1st Year Road Fund Licence

That’s an increase of 218% because of the new WLTP testing. Due to the new test procedures, the CO2 level is now in a much higher tax bracket. These costs would then be accounted for by an increase in lease and finance costs.

There is one win though, although it comes with a caveat. Previously there was a surcharge for diesel cars of 3% on BIK costs but for any car that is RDE2 (Euro 6d) compliant there will be no surcharge at all which is great news. The caveat? The surcharge for non-RDE2 compliant diesel cars has increased to 4%.

The car above is RDE2 (Euro 6d) compliant, if it were not then the first year’s road fund cost would increase by a whopping £870.00, which is a 410% rise!

With more realistic, higher CO2 figures plus the 4% surcharge for non-RDE2 compliant diesels, most cars BIK costs will increase substantially. This is why it’s so important that you are aware and make the right choices. The costs associated with each CO2 banding will increase yearly as the government adjusts the percentages accordingly. Remember! Your cars CO2 rating stays with the car for its lifetime. The bandings can move each year as the government focuses on a more sustainable future of renewable energy.

With a little adjustment to your mindset and some help along the way. UK Carline can help you choose your new vehicle. We are here to help guide you through the minefield and work with you to find the right car for your individual needs.

Let’s put the above into perspective and to show you the cost implications of these changes. We have created an example of what company car tax you would pay based on the vehicle below. To keep some parity, we have selected the same RDE2 compliant car which will avoid the 4% diesel surcharge. You can see what difference the change in CO2 testing has made to the BIK tax you will pay. Based on the same car registered pre and post WLTP. So, if you are currently driving a similar vehicle to the Mercedes below. And you have been running it for the past 2 or 3 years and you are looking at replacing it. (With the same car) Look at the difference in your personal taxation below, the costs have spiraled wildly.

Example Car 2020 Mercedes E220d AMG Line Edition 4dr Automatic Saloon
Date of Registration Car Registered Prior to April 2020 Car Registered April 2020 Onwards
CO2 Emissions 127 g/km 162 g/km
Combined Fuel Economy N/A 45.6mpg
2020-21 tax year BIK% 28% 35%
Taxable List Price With Metallic Paint £41,470 £41,470
Approx. BIK cost – 20% Taxpayer £193.53 per month £241.91 per month
Approx. BIK cost – 40% Taxpayer £387.05 per month £483.82 per month

As you can see from the table above, the 20/21 BIK has increase from 28% to 35%. Some may think this is just a 7% increase. The impact to the drivers pocket is a 25% increase in tax, just because of the of WLTP emissions testing alone. Remember, this doesn’t factor in the idea that each year the CO2 bandings become more stringent. The government are always working towards a greener future. The percentage CO2 bandings are only going to creep up and become more expensive year on year.

We also need to consider the impact on the company itself who have either bought or leased this vehicle. Higher CO2 emissions could impact the writing down allowance. Some cars will fall into a different capital allowance banding and the increased cost of the first years road fund licence will bump up the monthly rentals on the car too.

So What is the Solution?

UK Carline are here to help, and we are experts in what we do. To keep costs down to a minimum, we must quite simply find a car that has low CO2 emission figures. This is where many company car drivers and fleet managers are currently struggling as they often look in the wrong direction. You must not just look at the cost of the lease alone! So, if everything has increased, how is it possible? The key is for businesses and drivers to look towards three types of cars. This will depend on the driver and the company’s individual requirements:

  • Battery Electric Vehicles (BEV)
  • Plug-in Hybrid Electric Vehicles (PHEV)
  • Self-Charging Hybrid Electric Vehicles (HEV)

Battery Electric Vehicles (BEV)

First and foremost, for the 20/21 tax year there is NO company car tax costs and the BIK rate for 21/22 tax year will only increase to 1%, that’s phenomenal news for company car drivers as they stand to save £££’s year on year. As most drivers have typically paid £xxx per month in BIK costs, these savings are welcomed with open arms. We are actually finding that many businesses are also giving their drivers the choice as to whether they wish to contribute towards the lease cost of a car. This allows them to upgrade to a higher specification should they wish and fundamentally be no worse off financially than they were with their old cars.

Tesla – Zero Company Car Tax

To address any concerns about range anxiety and running costs of full electric cars, let us take an example of something like the Hyundai IONIQ 100kW Premium 38kWh auto. This car has a range of 193 miles (maximum) with a real-world range of around 170 miles. Customers sometimes comment “My current car is capable of 300 miles to a tank of fuel” and although this is true, we don’t have our own fuel stations at home so once every week or so we must travel to a petrol station to fill up. The beauty of full electric is you can plug it in at home overnight, at work during the day and as the country’s infrastructure grows, also at supermarkets, motorway services, car parks and even town and city streets whilst you go about your daily life.

The battery size on the IONIQ is 38.3kWh which using a wall box has a full charging time of 6 hours and 5 minutes from 0% to 100% or if you have access to a fast charge system it can charge from 10% to 80% in only 45 minutes. Based on an average cost of 14 pence per kWh and charged at home, a full 0% to 100% charge would cost just £3.92 which at a 170-mile range is just 3 pence per mile! If you have a reduced night rate on your electricity it could be as low as £1.99 to charge which is just over a penny per mile. It is also worth mentioning that the cars charge significantly quicker up to around the 80% capacity level and then charging speeds are reduced to prevent the battery becoming too hot, much like how a mobile phone is charged.

If we compare this to a diesel at 50mpg and work to a fuel price of £1.19 per litre, there are approximately 4.5 litres in a gallon which means one gallon of fuel would cost around £5.36. If we divide this by the 50mpg it will give you a cost of 10.71 pence per mile; more than triple the cost of charging the IONIQ or with a cheaper night rate it could be as much as 10 times more than the IONIQ; a huge saving! Some businesses also allow their workforce to use their charging stations free of charge which means an even bigger saving.

For the company who are paying the lease costs, full electric cars are also great as they have zero emissions for the writing down allowance and maintenance costs are reduced because there is no engine to service. They’re a great talking point and fantastic for the company’s image in relation to sustainable energy and a greener future. Some major contracts also insist on having a very stringent environmental policy being in place in order to do business with them so running an electric vehicle fleet may even help you win more business!

We appreciate that these won’t fit every driver or companies needs if there is for example limited ability to charge the car at home for someone living in an apartment block or if your driver travels over 300 miles in a day with no access to a charger (although many motorway service stations do have fast chargers now and drivers must take regular breaks so it’s much more accessible than people first think). For those cases however there is always the option of a plug-in or self-charging hybrid car.

Plug-in Hybrid Electric Vehicles (PHEV)

Plug-in Hybrid Electric vehicle – Ultra Low Company Car Tax

An alternative to a full electric car for those with concerns over the electric range or only having limited access to charging points whilst still aiming to reduce benefit in kind costs would be a plug-in hybrid. These cars have a shorter electric range but with the backup of a combustion engine (typically petrol although there are a handful of diesel variants on the market). These cars tend to have CO2 emissions below 50g/km and the BIK costs are currently depicted by the electric only range of the vehicle; the more miles the car can travel on pure electric, the lower the BIK percentage.

For the 2020 tax year on any cars sub 50g/km, this ranges anything from 2% BIK costs for cars with an electric range of more than 130 miles through to 14% BIK costs for anything with a range of less than 30 miles. These cars offer a significant tax saving for those drivers transitioning from the equivalent traditional combustion engine and are perfect for drivers with a reasonable commute distance and ability to charge the car at work or home.

Like any car, there are pros and cons as there is no “one-size fits all” option and plug-in hybrids sit right in the middle but there is one thing to bear in mind; although the benefit in kind advantages of a plug-in hybrid are fantastic which is a big draw, if used incorrectly it could leave the company and/or the driver with large fuel bill as the fuel economy figures stated by the manufacturers rely heavily on the fact that these cars need to be plugged in and allowed to re-charge.

There are many drivers that have historically opted for plug-in hybrids purely for taxation reasons and never charge the battery. Although this may sound like a viable option, it really is a false economy as it will have a significant impact on fuel costs and we would not recommend you using this type of vehicle if you are driving a significant amount of miles without it being charged and using the battery to its full potential. If you did not charge the battery regularly and run the vehicle purely on fuel, the miles per gallon returns would be far from great and could typically be worse than a normal combustion engine car due to the increased weight of the vehicle’s battery and electric motor.

Self-charging Hybrid Electric Vehicles (HEV)

Hybrid Electric Vehicles – Low Company Car Tax

Self-charging hybrids provide the easiest transitional step into the world of electric cars for any driver as they are driven much like a traditional combustion engine vehicle, and with some changes to your driving style can give you great fuel economy. There is no ability or requirement to plug the cars in and throughout your journey, any excess power when lifting off the throttle, coasting or braking will be used to re-generate energy and charge the in-built battery which in turn powers the hybrid motor.

The car will continue to seamlessly switch between petrol and electric where possible to save on fuel and therefore reduce emissions. Because self-charging hybrids are still reliant on a combustion engine but aim to maximise their efficiency without wasting energy, they do naturally have higher CO2 emissions than plug-in hybrids and fully electric vehicles however they will still prevent BIK costs rocketing compared to some traditional purely fossil fueled vehicles.

The impact of new WLTP emission figures that were causing such a significant rise in BIK costs as you saw with the Mercedes E class example earlier, will tend to be offset almost entirely using self-charging hybrid technology. An example of this would be the Lexus ES saloon which is a similar size and specification to the Mercedes however where the Mercedes jumped from 127g/km to 162g/km following the implementation of WLTP, the CO2 output of a Lexus ES300h F-Sport E-CVT saloon remains significantly lower at 131g/km which keeps the BIK costs down in the 29% category as opposed to 36% saving the driver and company a significant amount of money. This technology also allows the cars to return fantastic fuel economy with the Lexus model above being capable of 61.4mpg on a combined cycle.

So, to sum it up, do your research wisely, as you can see from the table below based on some simple questions, nearly all options could be viable for you but there is a lot to consider, this is where UK Carline can help you make the right choice for both yourself and your company!

Question BEV PHEV HEV
Do you have access to an electric charging point at work? 😊 😊 😊
Can you have an electric charging point fitted at home? 😊 😊 😊
Do you travel more than 30 miles to your place of work or appointments? 😊 🤔 😊
Do you travel more than 100 miles in any one day? 🤔 ☹️ 😊
Do you currently pay BIK Benefit in kind taxation? 😊 😊 🤔

For further information about our range of BEV, PHEV and HEV vehicles available to lease please visit our website at www.ukcarline.co.uk or call 01995 641111 and speak to one of our team about how we can help you find your next company vehicle lease and guide you through the maze which is BIK.


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