As we know, the government are continuing with their current strategy of taxing our company car drivers with a system that uses the Co2 and list price of the vehicle. As the % increases against the Co2 and the manufacturers increase the list price the company car benefit in kind tax regime becomes more and more expensive for the driver and the company.
There are a couple of additional changes happening –
• The 100% First Year Allowance (FYA) for businesses purchasing low emission cars for a further three years to April, 2021. This means that you can offset the cost of these low emission cars against your corporation tax. Threshold at the moment are 75g/km falling to 50g/km of CO2 from April 2018
• From 2018 the 50% disallowable finance element will be reduce from its current threshold of 130g Co2 to 110g Co2 which can represent a cost for those between 130g – 110g of £1000 over the life of the contract when comparing on a Net Present Value calculation
So what do we do? Well… we could get vehicles with low Co2 but this means in some instances that the list price increases especially if it is a PHEV (plug in hybrid electric vehicle) or if it is diesel then it will have the new Euro 6 engine which means in most instances I will need to account for Add blue again increasing costs. Also, we should insist that your contract hire company explain what they are doing with your whole life cost (WLC) policy given the changes in disallowable finance element (as explained above).
This gives us a couple more questions – How do I charge my car at home for the PHEV? What mileage rate do I use? How do I reclaim for the Add blue? How do I know what the contract hire company is telling me is correct?
Most of us will not understand the contract hire companies WLC policies and it is worth asking them to explain in real simple terms what they are doing and if you still don’t understand get someone to help you… have you thought about what our company expenses policy is for Add blue and also given that PHEV’s have a reported 140/150 mpg and in some cases higher, is paying AFR (advisory fuel rates) right?
So many questions will continue to be raised as we walk through the changes both with government policies, I have mentioned before the continuation of the 3% additional charge for diesels and the way the market is responding to the environmental challenges laid out by our government and the European Union. My advice to everyone is to start to look at your vehicle policies, review how you make up your choice lists, understand the government policies to help you make a vehicle policy that will be fit for today and the future.
Whilst doing this, you need to review your expenses policies to allow for the new Euro 6 engines that require Add blue and consider how you will manage things like home charging for PHEV’s and mileage rates etc… While doing this, you need to think about your employees and their bills. So below I set out a couple of examples that demonstrate by getting the choice list right it can be beneficial to all: -
% of car priceto be taxed:
Annual income tax payable 40% tax payer:
Volvo XC60 D5 AWD R-design
Mitsubishi Outlander PHEV
As you can see by enabling your employee to make a choice, they are able to have a similar styled vehicle but the difference in their benefit in kind charge is £3,000 per year!!
This will relate back through to the employers NI charge for that benefit and a difference of £403 per year. So it’s a win win for the PHEV. I am sure as we move into the second half of 2016 more and more PHEV vehicles will come to market, we have seen BMW enter their e designed vehicles with more to come.
If you need some support, advice or guidance then give me a call or drop me a line and I will be very happy to help you out. Marcus Puddy – Marcus@puddyvsolutions.co.uk - 07801472247