The Government has announced the new BIK rates for 2020-2023. The new rules offer some clear tax incentives for companies going electric. However, there are worries that the move to the Worldwide harmonised Light vehicle Test Procedure (WLTP) emissions test will cancel out reduced BIK rates announced by HMRC.
So how will changes in company car tax, or BIK, affect your fleet and your people?
BIK changes for 2020-23
Benefit-in-kind or BIK is also known as the company car tax and for good reason. Any fleet vehicles available for private use are seen as a perk. A perk on which your employees are required to pay tax. The tax banding depends on the vehicle’s P11D value and C02 emissions.
The latest BIK tables show the following changes:
- Electric vehicles will pay 0% in 2020/21. Then 1% in 2021/22 and 2% in 2022/23 in an attempt to fast track the move to zero-emission vehicles
- Cars first registered after April 2020 will benefit from a 2% reduction in 20/21. Then rising to the planned rate by 20/23
However, the 4% diesel premium is still in force with Real Driving Emissions Step 2 (RDE2) cars still exempt. And there are no changes to the BIK for HGV and LCVs which continue to be exempt if used for work and ‘insignificant’ private use or pay BIK at a fixed rate.
BIK and the WLTP emissions test
With BIK calculated largely on a vehicle’s C02 emissions, there are concerns as to the impact of the stricter WLTP test on the emissions used to calculate company car tax bands. The change in calculation from the old to the enhanced NEDC test is already calculated to have cost company car drivers 10% on their BIK.
It’s already estimated that the adoption of WTLP figures could add almost £800 to the BIK rate for a Renault Clio 1.5dci in 2020-21, with smaller cars facing the biggest hike in tax as the shift occurs.
Another unintended consequence of the rate hike may be an ageing fleet. With companies preferring to hang on to lower tax older models rather than move to lower polluting cars that attract a higher BIK. The 2% reduction in the rate is unlikely to do much to offset the higher emissions when WTLP is adopted.
The move to electric
Part of the rationale behind the new BIK tables is clearly the drive towards the adoption of zero-emission vehicles. However, with supply unable to keep pace with demand, the value of the 0% band for 20/21 may be limited.
Meanwhile, plug-in vehicles with a limited range or hybrids will fail to offer any significant advantage over high mileage petrol and diesel models. Meanwhile, the tax burden on those vehicles will rise, leaving many fleet managers between a rock and a hard place and unwilling to commit to longer-term leasing deals.
Businesses also face a challenge in assessing just how effective electric vehicles will be for their operations. The move to electric may further be hampered by the uncertainty over tax rates post 2019 with the Government giving no indication as to whether they will increase after that time.
Covering your fleet insurance
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