Changes to company car tax & WLTP for ULEVs = a move back to company cars?

10 January 2020

10 January 2020 by Nigel Morris Motor

EVs, company car taxation and procurement

The basis on which Company Car Tax (CCT) is calculated is changing, because cars registered from April 2020 will be taxed based solely on the output from the Worldwide harmonised Light-duty vehicles Test Procedure (WLTP), which aims to be more representative of real-world driving conditions, compared to the previous test, the New European Driving Cycle (NEDC).

Under WLTP a revised CO2 and MPG rating will be produced, and it is this CO2 rating that is applied to the List Price of the car to calculate the Benefit in Kind (BIK).

NEDC tests were not conducted on every model, but on a ‘family’ of models, whereas WLTP values depend, in part, on a consumer’s decisions to purchase additional accessories. On specific models, there is a range of values impacted by different trim levels and accessories.

The Treasury issued details of the proposed CCT changes in July 2019 and we now have draft legislation that shows the proposed company car taxation up to 2023.

The table below shows the revised plans for electric and ultra-low emission vehicles (ULEV), and the difference if registered before or after 6 April 2020 for tax purposes.  It is important to look out for the:

  • Registration date – key dates are pre or post 6/4/20
  • CO2  rating – critical level for hybrids is 50g/km
  • EV range – 5 bandings of full electric range have major impact on CO2 %

Note: Percentages are for petrol cars.  Add 4% for Diesel up to a maximum of 37% e.g. 78g/km CO2 Diesel registered post 6/4/20 in 2020/21 is 22% (18% + 4%).

So, for a couple of company car drivers this is what it could mean.

Vehicle choice and timing is everything!

Choosing the wrong vehicle e.g. Plug-in Hybrid Electric Vehicle (PHEV) vs Battery Electric Vehicle (BEV) could impact on up front allowances and reliefs.

Also, getting the timing right could impact on CO2 ratings and also whether the ‘old’ or ‘new’ BIK rates apply, adding several percent to the BIK tax and National Insurance Contributions (NIC) due.

As the example above show the tax cost difference in vehicle choice could be c£8,256 over 3 years and between acquiring a vehicle registered on 5/4/2020 or on 6/4/20 could be c£598.

Other considerations

Plug-In Car Grant - typically applied for by the car manufacturers on the customers behalf and acts as a straight-forward discount to the list price

A grant of up to 35% of the purchase price, capped at £3,500, is still available for cars with CO₂ emissions <50g/km and a zero-emission range >70 miles. This is usually taken directly from the purchase price and helps with the affordability of new cars, which are more expensive than conventional vehicles as the price of batteries is high, though this is reducing, and price parity is expected by about 2030.

Capital Allowances – tax reliefs claimable by the business that owns the vehicle

These are available for new and unused assets (cars) purchased by a company, not a leasing company. From April 2018 the amount that can be claimed is based on the CO2 emissions of the car:

  • <50g/km                                         100% First Year Allowance (FYA) for newly registered cars (not second-hand cars)
  • 51g/km – 110 g/km                      entered into a general writing down asset pool at 18% on a reducing balance basis

However it is worth noting that ‘unused and not second hand’ applies even if the car has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser, or used as a demonstration car.


A company car fuel benefit is incurred whenever:

  • any fuel is provided, whether or not for private use,
  • for a car that attracts a car benefit charge.

So, the fuel benefit charge potentially “applies” when any fuel is provided to the employee, even if it is only intended to be provided for business use.

Fuel is treated as provided if:

  • any liability in respect of the provision of fuel for the car is discharged, or
  • a non-cash voucher or a credit-token is used to obtain fuel for the car, or
  • a non-cash voucher or a credit-token is used to obtain money that is spent on fuel for the car, or
  • any sum is paid in respect of expenses incurred in providing fuel for the car.

Most employees ‘pay and reclaim’ which reduces the risk of a private fuel scale charge, but it is also very common for employees to have a fuel card or credit card and ‘make good’ the private fuel expenditure on the card.

However, for benefit in kind purposes electricity is not a ‘fuel’ and so no benefit in kind applies, even where an employer provides all of the electricity for the car, whether business or private use.

The difficulty, however, is in establishing the amount to repay to an employee when they have charged the car at home and cannot provide a detailed breakdown of the electricity charge incurred in just charging the car!

Mileage allowances – HMRC approved rates for business mileage claims

Since 1 September 2018 HMRC have published quarterly the Advisory Electricity Rate, currently 4p per mile. Theses should be used instead of the Advisory Fuel Rate (AFR) as electricity is not a fuel for these purposes. 

If the car is a hybrid then the AFR rate applicable to the fuel type (petrol or diesel) applies.

If the car is privately owned, the HMRC Authorised Mileage Allowance Payments (AMAP) can be used, paying 45p per mile for the first 10,000 business miles and then 25p per mile for any further business miles in the tax year.

Company car or private car?

If you are looking at a full battery electric vehicle (BEV) then the reduction in benefit in kind tax to 0% in 2020/21 (then rising by 1% per annum) is very attractive for the employee’s tax position and the employer’s NIC position.

However, these cars tend to have a much higher list price and therefore the purchase and lease costs can be high, even with enhanced capital allowances for businesses (not leasing companies) that purchase a BEV.

These vehicles are also not caught by the HMRC Optional Remuneration Arrangement Rules (OpRA), as their CO2 is less than 75g/km, so salary sacrifice could be used.  This has the benefit of enabling an employee to make a ‘contribution’ to the employer from Gross pay, saving more tax and national insurance, which may help make the provision more affordable for the employer and still costing the employee much less than the benefit in kind tax on a conventionally fuelled vehicle.

Careful consideration of the whole life costs (WLC) and total cost of ownership (TCO) needs to be considered before deciding if this is the right move and whether a company car, salary-sacrifice or cash alternative is the way to go.

Lease or purchase?

Deciding whether to lease or purchase depends on many factors specific to the business.

Outright Purchase

Outright purchase describes the straightforward situation where a business purchases a car using its own resources or through borrowing.

Whether savings or borrowings are used, the taxation liability of the business will be reduced, through lower interest income or increased interest expense. Corporate tax relief will be given through capital allowance (see above)

VAT is chargeable on all new cars purchased in the UK or imported for use in the UK. If the car is intended to have any private use at all, none of this VAT is recoverable.

Contract Hire

Contract Hire is a method of vehicle acquisition where the provider retains ownership of the vehicle and there is no pre-planned opportunity for the employee to purchase the car.

Tax relief is available on the lease rentals accruing during the hire period based on the CO2 rating of the car.  If the CO2 is less than 110 g/km then 100% of the lease rental is allowable, but if the CO2 of the car is 111 g/km or above only 85% of the rentals are allowable.

VAT on lease rentals is fully recoverable, subject to normal VAT rules, but only 50% of the VAT allocated for the finance element of the lease is recoverable if there is any private use.

There is no one size fits all, lots to consider, a huge amount of change currently in the marketplace and planned, so once the decision is made you need to see if you can source the required vehicles.

Contact the experts

If you have any queries, or would like to discuss your requirements or a fleet review, please contact:

Nigel Morris, Employment Tax Director at, Tel: 07718 340634

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