As you may be aware, the tax bands for company car tax are changing as of April 2017. There are 15 new bandings, with 11 being introduced for lower emission vehicles.
But what are the new bands? We take a look at the new company car tax bands, how this will impact you, and give you some top tips on how to reduce your company car tax bill.
Company car tax changes 2017
In the Autumn Statement, Philip Hammond announced that there would be some changes to the way our company cars are taxed. Similar to the VED rates (click here for more information on those car tax changes), there are going to be more bandings introduced for lower-emission vehicles.
When the current bands were introduced back in 2002, it was hoped that it would encourage businesses to invest in lower-emission vehicles. The good news is, it worked and the environment is much cleaner for it. The bad news is, it worked a little bit too well. Now, there are loads of lower-emission vehicles on the roads, paying very little in company car tax.
And so, new bands have to be introduced for these low-emission vehicles and that’s exactly what the government have done. Now, even electric vehicles will be taxed.
We’ve provided the old BIK rates and the new BIK rates so you can see how they are changing.
However, that’s not all. The government are also introducing a new way to tax your company car. This comes as a package to start taking salary sacrifice schemes as if they were the cash alternative. Therefore, you will either be taxed via the BIK rate, or the salary sacrifice/cash allowance amount, meaning any tax efficiencies that came with a company car will be no more.
This, according to the BVRLA, negatively impacts those with low-emission vehicles, whose BIK rates will be considerably lower than their salary sacrifice. There is, however, an exemption. And that comes in the form of an ultra-low emission vehicle (ULEV). ULEV’s will be exempt from this change and will instead simply be charged via their BIK rate (after some lobbying from fleet organisations and the BVRLA themselves).
What the company car tax changes mean for you
So how does all of this affect you?
Essentially, it means that, regardless of how much CO2 your car emits, you will still have to pay for company car tax. And, unless you have an ultra-low emission vehicle you could end up being charged for your salary sacrifice/cash allowance sum, instead of the BIK rate. For a more detailed explanation, you can read our article on the Autumn Statement here.
However, these do not come into effect until April 2017. This means that you have, at the time of writing, five months before these changes will impact you. So what can you do?
How to avoid the company car tax changes
Let’s be clear, you can’t avoid them forever. Unless you just don’t get a company car ever again but if you do want a company car, you cannot avoid the changes forever. However, as we mentioned, these do not come into effect until April 2017. The new BIK rates will not impact cars that are on the road before then. So, if you don’t fancy being put into a new BIK band, it might be a good idea to start looking for a new car now so you have a few extra years before you have to pay more.
However, there’s no word on when the new salary sacrifice changes will come into effect. AFCO, the organisation for Fleet Operators, have called for the government to ensure these changes do not impact those who already have company cars. But there is no word yet (20th December 2016) as to whether this will be honoured.
However, if you are looking for a way to avoid this change to how salary sacrifice schemes are taxed then the best way to do this would be to invest in an ultra-low emission vehicle. We understand this isn’t an option for everyone, but if you want to avoid the changes, then it’s something you may want to look into. You can read more about ultra-low emission vehicles here.
There is another way to avoid the changes to company car tax, but we know that this option will not be viable for many of you. And that’s to keep your company car strictly for business reasons. This will mean using it for meetings and to visit clients only. You only pay for company car tax if you use your car for personal use, including travelling to and from work. Obviously, that option isn’t for everyone, so we understand if you rule that out.
The options we’ve mentioned above are the only ways you can avoid the company car tax changes. And while you might not be able to avoid them forever, there are ways to reduce your company car tax.
Ways to reduce your company car tax
We’ve gone through ways to avoid the changes, but as we said, you can’t avoid them forever. So, what do you do when the changes will impact you?
The best way to reduce your company car tax is to opt for a lower emission vehicle. Although you may end up paying more, you will be paying significantly less if you got a higher emission car. Plus, these aren’t the only bits of legislation being introduced to favour the lower emission vehicles. Things such as a surcharge on more polluting vehicles entering the City of London and making central London an Ultra-Low Emission Zone by early 2019 will be making ultra-lower emission vehicles more attractive to many.
Of course, we understand that an ultra-low emission car isn’t for everybody. But, even a low-emission vehicle will still be beneficial when it comes to the changes to the BIK rates. You can read what cars are good for low company car tax here.
So, there are the new company car tax bands. We understand that it’s not exactly ideal (you can read our response to the 2017 Autumn Statement here) but unfortunately, it’s going to happen. That’s why we’ve written articles on it, because we know that it could have a huge impact on you and therefore it’s important you are clued up so you know exactly what happens come April 2017. Hopefully this has given you some idea on the changes to the company car tax bands, and how you can reduce your company car tax.
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