Tax changes down the road for company vehicles

As the Government continue to push the car industry to develop more environmentally friendly cars, there are some changes taking place in April 2018 that decrease the tax relief in respect of motor cars leased or bought by a business, after this date.

At the moment, the tax relief claimable by the business, depends upon the carbon dioxide (CO2) emissions of the car.

If the CO2 emissions are less than 130 g/km then:

  • Tax relief is given on a company owned vehicle at a rate of 18% per annum.
  • Tax relief is fully allowable for the associated lease costs.

If the CO2 emissions are more than 130 g/km then:

  • Tax relief is given on a company owned vehicle at a rate of 8% per annum.
  • Tax relief is only given on 85% of the lease costs.

From 1 April 2018, the amount of 130 g/km is replaced in the above rules by 110 g/km. This means that a car with CO2 emissions of say 125 g/km bought on 31 March 2018 will have more favourable tax treatment than the same car bought a day later on 1 April 2018.

Example A – Car bought pre April 2018

A company buys a vehicle for £40,000. It has CO2 emissions of 125 g/km.

The tax relievable cost in year one is 18% of £40,000 i.e. £7,200. (Leaving a ‘cost’ of £32,800 to relieve in future years)

The tax relievable cost in year two is 18% of £32,800 i.e. £5,904 and so forth.

Example B – Car bought post April 2018

A company buys a vehicle for £40,000. It has CO2 emissions of 125 g/km.

The tax relievable cost in year one is 8% of £40,000 i.e. £3,200. (Leaving a ‘cost’ of £36,800 to relieve in future years)

The tax relievable cost in year two is 8% of £36,800 i.e. £2,944 and so forth.

Example C – Car leased pre April 2018

A company leases a vehicle for £10,000 per annum. It has CO2 emissions of 125 g/km

The tax relievable cost in year one is £10,000.

Example D – Car leased post April 2018

A company leases a vehicle for £10,000 per annum. It has CO2 emissions of 125 g/km

The tax relievable cost in year one is £10,000 x 85% = £8,500.

Thinking of changing or replacing company vehicles?

Our advice would be to consider changing the vehicles, where possible, ahead of next April. This will ensure that the vehicles still fall within the more favourable tax regime.

If not, then consider cars with lower CO2 emissions when it’s time to change. Not only will the company benefit from lower taxes but the employee’s may also benefit too as their company car tax may be lower.

As ever, our tax teams are here to help your decision making.