Electric car drivers will pay no company car tax from 6 April; experts predict big surge in demand
Autocar
1 April 2020

The electric car revolution is poised to hit the UK this year, but not because of purchase grants, green-shaming or European Union regulations. Instead, the expected sales boom is set to be driven largely by a change to company car tax regulations.

After next week's upcoming changes were announced in July 2019, sales of EVs doubled in the second half of the year compared with the first half, according to figures from the Society of Motor Manufacturers and Traders (SMMT). Business lease firm Alphabet reported a 165% rise in orders for plug-in vehicles.

The UK’s company car market is big business. Up to the end of November last year, 53% of cars sold went to fleets, SMMT figures show. Company cars aren’t free; they're a heavily taxed perk and the government has since 2002 pegged the rate of duty to the car’s official CO2 emission figure. That move forced drivers out of thirsty petrol-engined cars and into more frugal diesels as companies sought to reduce the tax burden on their employees.

This year, however, the focus switches to plug-in cars. From 6 April 2020, people who choose electric cars will pay 0% company car tax: nothing at all.

“The fleet sector has a lot of pent-up demand, and this tax incentive could lead to a big surge in EVs,” said Gerry Keaney, chief executive of the British Vehicle Rental and Leasing Association (BVRLA).

Simultaneously, company car tax will, for the first time, be calculated using the CO2 figures generated by the new, tougher Worldwide Harmonised Light Vehicle Test (WLTP) regime. In short, the government is offering a huge, juicy carrot for drivers choosing electric and plug-in hybrid cars and an extra whack of the stick for staying with conventional diesels or petrols.

How all this is worked out will already be familiar to company car drivers. The tax, known as benefit-in-kind (BIK), is expressed as a percentage of the car’s list price. For example, a Vauxhall Astra 1.2 turbo petrol with CO2 measured at 99g/km currently falls into the 23% tax band. That figure is further modified by the employee’s salary tax band, so those who earn more pay more.

To give an idea of how generous the new tax rates are, the driver of a Nissan Leaf electric car previously would have payed between £871 and £1960 in company car tax, depending on their salary. From 6 April, the Leaf falls into a 0% tax band, meaning they’ll pay nothing. That generosity from the government lasts only a year, but the following tax year the Leaf bill rises to just £54-£122, then £109-£245 the year after that (company car taxes rise annually with the same inevitability as rail fares).

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It’s even more striking when you compare the figures for EVs against combustion-engined cars. While a Tesla Model S costing £97,700 attracts a 0% company car tax from 6 April, a slightly cheaper Mercedes-Benz S450L AMG Line costs the driver a whopping £13,116 for the year.

Preparations have been under way for some time. Hyundai, for example, earlier this year, revised its EV range and was making sure cars are available. EVs such as the Kona Electric have been in short supply, but that was expected to have changed by now. 

“We expect there to be a surge for our fully electric vehicles and we will be seeing greater availability of those models this year and beyond,” said Ashley Andrew, managing director of Hyundai Motor UK in February. However, the coronavirus pandemic is likely to have a significant impact on vehicle supply.

Businesses are also revising their electric vehicle policies, some radically. Consulting and IT firm Atos, for example, now offers electric cars only to any new employee signing up to its company fleet scheme.

Charge point firm Pod Point, meanwhile, has reported “record” demand for installations at businesses over the past six months. “With the BIK change, we expect to see a massive increase in company car drivers going electric. It’s going to turn the industry on its head,” Pod Point CEO Erik Fairbairn said.

It won’t all go smoothly. The BVRLA’s Keaney points out that a surge in demand can only come if there are enough EVs available on the market. One Atos employee, who wanted to remain anonymous, grumbled that delivery times for new electric cars were so long that the policy had in effect imposed a ban on company cars.

Some companies, however, don’t offer their employees the option of an electric car. Sometimes this is because they have a deal with just one manufacturer, which might not yet sell an EV. For example, Serco and Capita, both service companies, only use Ford, which won’t have an EV available until the pricey Mustang Mach-E arrives late in the year.

Sticking with combustion-engined cars, however, is set to get more costly. Switching to the WLTP method of calculating CO2 for tax bands means that an Astra 1.2 jumps from its 99g/km emission figure to 119g/km. After some pressure, the government adjusted the bands to account for the WLTP jump, but our sample Astra still goes from a 23% band to 26%, costing drivers more.

“The reduction in rates for two years is unlikely to compensate drivers fully for the increase in emissions,” said Caroline Sandall, chairman of fleet industry pressure group ACFO. She also pointed out that because of December’s general election, the changes haven’t yet been made law.

The changes also benefit plug-in hybrids, fleet sales of which have exploded since the July announcement. SMMT figures show that in the second half of last year, three out of four of new PHEVs sold went to fleets. The new tax rules benefit longer-range plug-in hybrids. For example, the new BMW X5 xDrive45e, with an electric range of 54 miles, will fall into the 6% tax band from the 6th of April, rather than the 12% band it would have been in if BMW had stuck with the previous version’s 20-mile range.

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Of course, what the government gives it can also take away. After April 2023, it will have the power to create new tax bands. By that time, however, the temptation of cheaper motoring will have persuaded thousands of company car drivers into switching to plug-ins.

Nick Gibbs

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Comments
21

3 February 2020

If the charge points work !!! My experience with public charge points is they either don't work, are blocked by ICE cars or theres several EV's waiting to use them. Dont seem top remember that many petrol or diesel pumps not working in the 36 years I've been driving.

I charge at home before a long journey, as you just cant trust the charge points are available. The more popular EV's get, the more hacked off people there will be. Then theres the cheap electric, which is just about to get much more expensive with these new forecourt type charge stations charging 39p a KW. 

The industry like to tell people how cheap EV's are to run, well that has been the case, but the cars are expensive in the first place and with much higher electric prices just around the corner (thats the real reason the EU and government want everyone to have a smart meter) and subsidy's tailing off as the years go by................

3 February 2020
This is great news for the company car driver, especially as it includes phevs which helps with range anxiety, no benefit to private buyers though so nothing will help me upgrade for a very long time yet.
Let's hope the charging infrastructure improves likewise, I know there has been investment and plans.

3 February 2020

Unless the government has suddenly decided it can live without tax revenues, this self-evidently cannot last.  It is akin to the fabled 'money tree'.  

 

More to the point, Autocar, why should the tax revenues of poor people who cannot afford a new car at all be subsidising wealthy people to buy Teslas?

 

3 February 2020
eseaton wrote:

Unless the government has suddenly decided it can live without tax revenues, this self-evidently cannot last.  It is akin to the fabled 'money tree'.  

 

This will change back once a tipping point has been reached where there are lots more EVs on the road

eseaton wrote:

More to the point, Autocar, why should the tax revenues of poor people who cannot afford a new car at all be subsidising wealthy people to buy Teslas?

 

Its real life - new tech is always more expensive at the beginning because there are not enough competitors and production is not yet in massive enough numbers to down costs. Take a look back through history - e.g. plain old CD players were £400-£500 when they first hit the shelves

3 February 2020
eseaton wrote:

More to the point, Autocar, why should the tax revenues of poor people who cannot afford a new car at all be subsidising wealthy people to buy Teslas?

 

Its real life - new tech is always more expensive at the beginning because there are not enough competitors and production is not yet in massive enough numbers to down costs. Take a look back through history - e.g. plain old CD players were £400-£500 when they first hit the shelves[/quote]

Yes, but I don't remember expensive top-range CD players being subsidised by the tax payer compared to basic CD players, which is eseaton's point on the tax subsidy being given to luxury Teslas.

289

4 February 2020
Yes CD players were very expensive at first.... but owners of record players weren't taxed to help richer people buy CD players! Subtle difference

I believe that this was what eseaton was eluding to.

3 February 2020

Nice one Autocar! an accurate description of the company car tax situation. Only thing I would add is that many plug-in drivers are reimbursed via approved fuel rates (AFRs) for business travel. The critical factor here is engine size, sub 2.0L currently gets 14p per mile. For many drivers this is borderline, very careful drivers will about break even, slightly heavier footed ones will lose money personally. Over 2.0L pays 21p per mile, its virtually impossible to lose money on that unless you drive like a car thief permanently. So pick wisely!, most German, Swedish and French PHEV's are sub 2.0L. Over 2.0L PHEV's available will be Outlander, New Kuga, forthcoming RAV4 PHEV. The sub 2.0L's will mean driving like a nun for the term of your lease or be out of pocket, the over 2.0L's will mean driving however you like and still making a profit!

3 February 2020
So demand will outstrip supply in both the availability of new EV's and, more importantly, charging infrastructure! 39p a KWH, queues at public charging stations, it will be like going back to the early 70's.

3 February 2020

When company car drivers can get them for free ie no tax from April so the  prestige will revert back to having a combustion engine and go anywhere without range anxiety.

3 February 2020

So, for those that dont buy cars they get a huge tax relief and for those that cant afford to change their cars they get a large tax increase, that is just effing pathetic, again, for those that are hard up and cant afford £25k plus for a new EV, they have to pay for those that dont buy cars, but have a company car instead.....MMMMMMMM

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