Are company cars still a good value benefit?

In the current climate, controlling your organisation’s costs has never been more important. However, you also know how important it is to offer a competitive, exciting benefits package that appeals to employees and meets organisational objectives.

While it might seem tricky to achieve these two goals simultaneously, to striking the right balance between cost control and company car benefit provision, it can be done. By providing a salary sacrifice car benefits scheme, you can provide cost-effective cars and take maximum advantage of HMRC tax breaks.

The history of company car tax

Way back when, company cars were considered a tax-free benefit, before Benefit in Kind (BiK) was applied on a sliding scale. As greener transport became a government goal, this tax system was applied to encourage the take-up of low emission cars and to discourage drivers from choosing higher emission vehicles.

As technology improved, the cars which HMRC counted as a low emission, changed. From 2002 to 2008, cars emitting 144g/km CO2 or less were considered low emission, decreasing to 120g/km CO2 from April 2008.

Car benefit tax changes: An opportunity for organisations and employees

In 2019, the government shifted its view again. From April 2020-2021, cars with no emissions (pure electric cars) dropped from a 16% BIK rate to 0%. This then increased to 1% and 2% in 2021-2022 and 2022-2023. ULEVs that emit 50g/km CO2 also received significant cuts in their BIK rates to as low as 2% in the 2020-2021 tax year.

This change in tax policy was a chance for forward-looking organisations to save significant sums in NI contributions and help employees get behind the wheel of a brand-new, green, safe and affordable new car, with much less tax payable – all for a fixed monthly fee.

These changes have been a very effective emission-reducing strategy because of the way company car benefit works in the UK.

Employee income tax and employer NICs are calculated based on:

The value of the car x by a percentage determined by the car’s:

CO2 emissions
fuel type
electric range

This calculation results in the employee’s BIK rate which is then multiplied by the individual’s marginal tax rate of 20%, 40% or 45%.

Here’s how it works.

A diesel company car emitting 133g/km CO2 would attract a 30% BIK rate from April 2022. Multiplied by a £36,535 price for a basic rate tax payer, the tax payable would be £2,484. A comparable electric car would attract a 2% BIK rate so the EV equivalent would incur tax of just £130 instead. As this is payable on a monthly basis, this works out to be just £10.83 per month.

This position makes it more than possible for your business to offer EVs at a lower cost than equivalent petrol or diesel cars. And, there are other major benefits for both employers, employees and the environment – including ongoing savings in running costs.

Other advantages to our scheme

Of course, car benefit isn’t all about the tax savings. There are lots of other great reasons to offer this sought-after benefit. Partner with Tusker and you’ll enjoy:

Competitive manufacturer discounts so you know you’re securing great value for money in a rising market
A comprehensive support package covered within the monthly amount – this includes maintenance, servicing, breakdown cover, road tax, insurance and more
Complete scheme support saving you time and money
Our unique lifestyle protection scheme which covers employers and employees for unexpected changes like parental leave, redundancy, death and a range of other circumstances
An exceptionally accessible benefit for all staff as no credit check or deposit is required
Reduced business mileage claims thanks to the low cost of electricity on certain tariffs, when compared to petrol and diesel prices.
Carbon offsetting for all salary sacrifice cars, which boosts your company’s green credentials and reduces the overall carbon footprint

Changing the profile of your company car fleet from internal combustion to electric is a very attractive proposition.

Working with a car benefit provider who can take you through the tax changes and ensure you’re generating the best scheme ROI is invaluable. Allowing you to deliver on your employee benefit, corporate social responsibility and cost saving agendas.