The Government says that company car drivers choosing a pure electric vehicle will pay no benefit-in-kind (BIK) tax in 2020/21.
In its long-awaited response to its review of WLTP and vehicle taxes, HM Treasury has scrapped the previously published BIK rates for 2020/21.
Instead it has created two new BIK tables for company car drivers; a table for those driving a company car registered after April 6, 2020, and one for those driving a company car registered before April 6, 2020.
HM Treasury says that for cars first registered from April 6, 2020, most company car tax rates will be reduced by two percentage points.
That means for a pure electric vehicle with zero tailpipe emissions, company car drivers will be taxed at 0%, paying no BIK tax at all.
Furthermore, the zero percentage rate is also extended to company car drivers in pure electric vehicles registered prior to April 6, 2020, who were already looking forward to a much reduced rate of 2% for 2020/21.
The 0% rate will also apply to company cars registered from April 6, 2020, with emissions from 1-50g/km and a pure electric mile range of 130 miles or more.
Both will then increase to 1% in 2021/22 and 2% in 2022/23.
Pure electric company cars registered before April 6, 2020, will also increase to 1% and 2% in subsequent years, 2021/22 and 2022/23.
However, company cars registered before April 6, 2020, with emissions from 1-50g/km and a pure electric mile range of 130 miles or more attract a 2% BIK rate in 2020/21 and stay the same for the two subsequent tax years.
From 2023/24, fleets will have one BIK tax table again as the rates are realigned.
The Government says that “by providing clarity of future the appropriate percentages, businesses will have the ability to make more informed decisions about how they make the transition to zero emission fleets”.
It added: “Appropriate percentages beyond 2022-23 remain under review and will be announced at future fiscal events.
“The Government aims to announce appropriate percentages at least two years ahead of implementation to provide certainty for employers, employees and fleet operators.”
The fleet industry was asked earlier this year to respond to a series of questions around whether vehicle tax changes are required once the new emissions testing regime, WLTP, is adopted for tax purposes from April 2020.
Initial evidence provided by manufacturers suggested that more than 50% of cars will see an increase from NEDC-correlated emissions values to WLTP of between 10% and 20%.
For company car drivers and fleet operators choosing a new car from April 2020, this could have resulted in an increased tax liability, compared to an identical model. The Government hopes this new approach avoids that anomaly.
The 4% diesel premium on published BIK rates remains, but cars classed as RDE2 will still be exempt from the charge.
Today’s changes, however, do not affect the lease rental restriction, capital allowances or any other CO2 related taxes and incentives, but will include fuel benefit charge.
The Government says that existing vehicle excise duty (VED) rates – also not part of this review – will stay the same from April 6, 2020, despite the introduction of WLTP values for tax purposes from this date.
A call for evidence for VED will be published later this year, seeking views on moving towards a “more dynamic approach to VED”, which recognises smaller changes in CO2 emissions.