Once the ultimate status symbol, the car company car has been in decline for years.  The year 2002 was pivotal as benefit in kind tax changed from being a calculation based on list price and miles driven to list price and CO2 emissions and suddenly high mileage drivers in their petrol V6 Vectras moved to more modest diesels.  However, low mileage drivers benefited and anyone happy with a more environmentally friendly car didn’t come out of it too badly..

But numbers of company cars still declined.  One reason for this is the increase in the ranks of the self employed and small business owners which have multiplied in the past few decades and the introduction of contract hire for individuals.  When it’s your own money paying for the car whether it’s through your company or personal bank account, it’s the tax implications that swing the decision and for a while now it’s tended to favour personal contract hire with no resulting benefit in kind tax.

However, for employees, the company car is still a big plus.  Take for example the BMW 320d EfficientDynamics Sport saloon – an aspirational car most employees would be delighted with.  The benefit in kind rate that applies this tax year is 19% of the P11D price which means that higher rate taxpayers pay just under £200 per month in tax.  It might sound a lot but compare it to a fully maintained personal contract hire rate of over £300 per month and it’s still a bargain.

But move on 4 years to 2020-2021 and the BIK rate will be 29% for that model meaning higher rate taxpayers will be hit by a monthly tax bill of £300 ie very close to the contract hire rate.  This means the company will paying in the region of £300 and the employee even more.  Overall it’s not a good deal as it’s costing £600+ per month for a £300 car.  Not surprisingly, businesses will continue to move towards car allowances, which are personally taxable as they are classed as income, but will often make more sense overall when factors like tax relief on fuel are taken into account.

So is the answer to move to a car like the (non-aspirational) Nissan Leaf, an all electric, tax efficient, ultra low emissions vehicle?  Well, if you can live with the complications of daily charging and the limited range, it’s a good company car choice as it’s currently charged at just 7% of its price so the top of the range Tekna costs a higher rate tax payer less than £80 per month.  Fast forward 4 years though and the Leaf will be taxed at the same percentage (19%) as the BMW mentioned earlier is now and the same taxpayer will be losing over £200 per month – a 150% increase.  In other words, ultra low emissions vehicles will be taxed in 2020/1 to the level that an average company car is now.

Of course, developments in technology will make cars more efficient but, unless the tax system moves away from CO2, company car tax will continue to rise at this kind of rate.  After all, how do you reduce CO2 emissions on a car which is already at zero?

What does this mean for employers?  Think about your car policy; do you have an alternative to company cars so the employee can choose what suits them?  An employee who may be happy with their shiny, new car now may resent it towards the end of a 4 year contract as their take home pay drops if they didn’t have a choice and weren’t aware of the tax implications.  Of course there are other considerations such as company image, safety of employees and the public due to older, less well maintained vehicles being used on company business but there are ways to deal with this that a good leasing broker can advise on.

Employees?  Do the numbers and not just for this tax year but for the duration of the contract.  Ask about alternatives and consider personal contract hire.  If a company vehicle is a prerequisite, pick one that’s as tax efficient as possible whilst suiting your personal and business routine.

The company car isn’t quite dead yet but its days may be numbered.

If you’d like to know more about how leasing works and how it could work for you, please get in touch.  If you think others would be interested in this post, please share it.

Matt Spivey

Vehicle Leasing Neva Consultants
Left the corporate world in 2013 after ten years at Vodafone and now specialising in car and van leasing with Neva Consultants.Serial networker and member of BNI Wakefield Wealthbuilders, 4Networking and The TradesHub Academy South Yorkshire.

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