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Without planning ahead, tax increases could drive company car owners round the bend

Shona Duncan
13 July 2018

Without planning ahead, tax increases could drive company car owners round the bend

By Shona Duncan, Senior Tax Manager at Hall Morrice LLP

Whether you see yourself in a Kia Picanto or a Porsche Panamera, the allure of a company car is strong for many businesspeople. While both of these models are highly rated as company cars, your initial budget shouldn’t be the only deciding factor – you should also take into consideration any expenses which may be incurred in the future.

Sometimes seen as a perk of promotion and other times as an incentive to bring new talent into the company, the running costs associated with company cars have increased over the last few years and are set to climb higher in the future.

In the past, drivers may have chosen a low-emission vehicle to avoid any additional tax charges. Currently, however, cars with CO2 emissions of 0-50h/km still face a 13% tax charge. By 2019/20 this will increase again to 16%.

Drivers of low-emission cars aren’t the only ones who will face increases in 2019/20, though – cars with 51-75g/km will be subjected to a charge of 19%, while those in the highest bracket – 95-99g/km – will rise to 23%.

Drivers favouring diesel currently also face a 4% surcharge – however this does not apply to diesel hybrids or those certified to the Real Driving Emission 2 standard.

Despite increasing charges, low-emission cars still present a more favourable tax situation than high-emission vehicles – but when planning for the future, what can be done to reduce these charges even more?

The clear choice for the future is an electric car. From 6 April 2020, the electric range of a car will become a major factor in determining the percentage charge for cars with CO2 emissions of 1-50g/km. More palatable charges will be applied to those cars which can travel long distances on electric power alone – and a charge of just 2% will apply for cars that can only be driven with zero emissions.

If you’re not keen on a fully-electric vehicle, hybrids like the BMW i3 occupy a comfortable middle ground. Although one of Auto Express’ most expensive recommendations for a company car in 2018, with emissions of just 13g/km it is within the lowest tax charge bracket – potentially saving money in the long run.

So, if you find yourself looking for a company car, carefully weigh up your options; compare the initial up-front cost to the tax charges which will follow. If it’s a viable option, consider contributing to the cost of the car yourself if it will help you get a car with lower levels of emissions. Up to £5,000 can be deducted from a car’s list price when calculating benefits - so as strange as it might sound, buy a more expensive car may just save you money in the long run.

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