Government statistics show that new registrations of Ultra Low Emission Vehicles (ULEVs) still represent a very small proportion of the total number of new cars registered in Great Britain. In the quarter ending 31 March 2019, only 15,853 of the 857,000 cars registered in Great Britain were ULEV cars, approximately 1.9 per cent. With the Government targeting an increase in that percentage to 50 per cent by 2030, tax incentives have been introduced to help accelerate the take-up.
A key advantage that has recently been announced is that, in the 2020/21 tax year, no taxable benefit-in-kind charge will arise to employees with zero-emission company cars. That will rise to a 1 per cent benefit-in-kind charge in 2021/22 and 2 per cent in 2022/23.
As an example, the new Tesla Model 3, which starts in price at around £37,000, would not give rise to a benefit-in-kind tax charge in 2020/21 whereas a petrol car of similar value could result in a tax liability of around £4,600 for a higher-rate taxpayer.
In addition to that, whilst the tax benefits of salary sacrifice schemes have been largely removed since the changes in 2016, they do still exist for ULEV cars. By foregoing salary in exchange for the ULEV car, both the employee and employer can benefit from National Insurance savings. The employer can also potentially benefit from 100 per cent capital allowances on the acquisition of the ULEV car, resulting in a 17 per cent corporation tax saving or perhaps an even higher tax saving for employers operating as a partnership.
Employees who have their company car fuel paid for them also suffer a benefit-in-kind tax charge. Taking the petrol car example above, the tax liability for a higher rate taxpayer would be around £3,000. In contrast, if an employer provides free workplace charging points for employees to charge their vehicles, there are no tax consequences to the employee. To top it off, claims for Advisory Mileage Allowance Payments can also be made by owners of electric cars in the same way as petrol and diesel car owners.
So, whilst drivers of diesel and petrol cars could be facing long queues at their local garage if the predictions of the Government’s no-deal report ‘Operation Yellowhammer’ prove correct, those with an ULEV car may drive silently by, having enjoyed tax-free charging at work and no benefit-in-kind tax liability. It might therefore be worthwhile booking that test-drive ahead of the changes.