Steering your way through company car tax

14th June 2021

As people are starting to get out and about more, some workers are returning to the office and the roads are getting busier. Those who have company cars may not have got much use out of them over the past year but they are still viewed as a perk. In fact, fleet sales account for about 50% of the UK’s new-car market (although not all those will be company cars driven both for business and personal use).
The HMRC certainly views company cars as a perk and they are subject to tax as a Benefit-in-Kind (BiK). BiK is the tax on a non-salary perk, provided by an employer to an employee.

How much you will be taxed for your company car is calculated based on earnings tax bracket, the car’s list price and emissions. The more CO2 a car emits, the higher its BiK rate. The Benefit-in-Kind rates usually change each financial year, starting on 6 April.

Since 2019, car tax rates’ calculations have become more complicated as the government tries to meet its ‘green’ targets. 2021/22’s rates are based on WLTP (World harmonised Light vehicle Test Procedure) emission tests. For cars that were first registered after 6 April 2020, the new WLTP CO2 figures will be used to determine BiK rates. WLTP uses tougher criteria than the old NEDC tests. Talk to us about it if you need advice!

Note: While BiK rates apply every year for company car drivers, only the first year of road tax is linked to CO2 emissions, with a flat rate for following years.

Electric company car tax savings

Company car drivers who choose an electric vehicle (EV) could, potentially, save thousands of pounds in tax compared with the driver of a comparable diesel model. Electric cars were not subject to BiK tax in 2020/21 at all. In the 2021/22 financial year the BiK rate is 1%, and in 2022/23 it will be 2%.

You can view the latest Car, Van and Fuel Benefits in our handy 2021/22 Tax Data booklet

Or take a look at HMRC’s Company Car Tax Calculator

Bumpy road for company car tax on off-road vehicles?

Another area to navigate is this: if you did not use your company car over the past year because of COVID-19 and registered for a Statutory Off Road Notice (SORN) you might assume that you will not have to pay BiK. Over 544,000 applications were made to the DVLA for a SORN between 23 March and 19 April 2020, more than double the number during the same time in 2019.

But unfortunately a SORN alone is not enough to avoid tax.

This is because the BiK for a company car applies where a car is made available for private use, regardless of whether or not it is used. So HMRC considers that a company car sitting on a driveway is still available to drive, even if you did not take it for a spin.

In a recent statement HMRC said: “For example, a car kept on an employee’s driveway during a period of furlough would still be considered to be made available. HMRC would not accept a SORN declaration as proof of unavailability.

“In most cases, HMRC would expect that the car is handed back to the employer so that it cannot be used. However, we recognise that under the current circumstances it may not be possible to hand the car itself back so, exceptionally, we would accept that where all the keys (or tabs) are in possession of the employer, and the employee does not have the authority to request the keys are returned to them, the car would be ‘unavailable.'”

In summary then, while having a SORN enables you to claim a refund for any remaining road tax, to avoid BiK you would have had to hand the car back – or at least have given the keys back – to your company.

For further information please contact us.

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