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The changing UK tax landscape for company cars

The changing UK tax landscape for company cars

The changing UK tax landscape for company cars



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What’s changing?

Changes in tax legislation announced this summer mean that electric cars and some hybrid vehicles will be free of company car tax from April 2020.

Many other hybrid vehicles will also see a significant reduction in company car taxation.

But it is not all good news, as many petrol and diesel drivers have seen significant increases in company car tax in recent years and these high levels of tax will remain in place.

These tax announcements are the most dramatic change in company car legislation since the CO2 related tax bands were introduced in the 1990s.

As such, this is the optimum time for organisations to review their strategy around the provision of company cars.

What should employers consider?

There are a number of key areas that employers should consider carefully considered in light of the changing landscape. These include:

Is electric the way to go?

The UK government has announced 2040 as the target for ending the sale of new petrol and diesel vehicles.

With this in mind, it’s worth considering whether electric cars could be a suitable alternative and for which drivers.

There are many factors to consider in relation to electric cars including choice, cost, taxation, suitability for your business needs and investment in infrastructure.

Salary sacrifice for company cars

The low levels of company car taxation mean that 2020/21 and beyond will be the optimum time to consider salary sacrifice for electric/hybrid cars with considerable savings potentially available to both the employee and the employer.

What about diesel vehicles?

There are a number of diesel cars being announced which will meet the new RDE2 testing standard. This means that the 4% diesel supplement for company car tax won’t apply to them.

However, it is possible that cities will follow Bristol City Council’s lead and seek government approval to ban all diesel vehicles from their city centre from 2021.

Access issues like this could clearly be a consideration for many drivers in deciding whether they should take a diesel company car for 3 or 4 years.

Should I move away from company cars and move to cash?

For many petrol and diesel drivers, the high levels of company car tax mean that they may be financially better off with a cash alternative.

There are again many key factors to consider including: employee education, financial analysis, health and safety and a robust policy.

Furthermore, are there other alternatives that you could offer to drivers that could incorporate manufacturer negotiated discounts without conferring a company car benefit?

How KPMG can help

KPMG can assist you in considering the impact of these changes on your organisation in more detail, which could include deciding upon a change in delivery to generate savings and enhance employee engagement, through a change in overall car strategy.

We can offer an independent review of your existing policy and work with you to develop a strategy which works for the business.

Financial analysis, detailed tax knowledge, employee communications and legal advice will be key to any strategy changes and we can support businesses with all these areas in helping with the changing landscape of company car provision.

Further information

If you have any queries, please contact Mathew Scott via this form.

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