Company car driver numbers on the rise
The number of employees paying company car tax has risen by 40,000 year-on-year – a 5.5 per cent increase and the first since 2015.
New figures from HMRC also reveal the shift to electric powered cars continued through to 2022/23, with almost a quarter of million company cars now fully electric.
The latest benefit-in-kind (BIK) statistics released by HMRC shows that there were 760,000 employees paying company car tax in 2022/23, compared to 720,000 the previous tax year.
The growth is being attributed, in part, to the growing popularity of salary sacrifice schemes for cars as well as a return to more normal working activity post-pandemic.
HMRC also reveals that the number of company car drivers could be even higher, with “considerable underreporting” after voluntary payrolling was introduced in April 2016.
Directors of companies and employees are liable to pay Income Tax on the value of their company cars and car fuel benefits.
Their employers – or in certain cases other third parties who provide benefits in kind -are liable to pay Class 1A NICs on these benefits. Other benefits may be subject to Class 1 NICs. The taxable value of a benefit depends on its type.
Tax on benefits is usually collected via tax code adjustment notified by HMRC to the employer, based on P11D returns submitted after the end of the tax year.
The new statistics also show the number of reported fuel benefit recipients was 50,000 in 2022 to 2023 the same as the previous year, although there has been as steady decline from 240,000 in 2011 to 2012.
HMRC says the shift towards electric powered cars is expected to be in part behind the decline in fuel benefit use.
The figures also reveal the proportion of company cars using diesel fuel fell to 23 per cent (170,000) in 2022/23.
There are major government incentives on the use of electric vehicles as company cars.
Electric vehicles have the lowest rate of company car tax, with rates starting at two per cent.
From April 2025 onwards, company car tax rates on electric vehicles will increase by one per cent per annum for three years.
In the 2025/26 tax year, the rate for EVs will be three per cent. It will then be four per cent in 2026/27 and five per cent in 2027/28.
However, vehicles which produce CO2, face far harsher tax thresholds with cars producing more than 160g of CO2 per kilometre currently paying a BiK tax rate of 37 per cent.
There are also advantages for employers. Where a new and unused fully electric vehicle is purchased outright before March 31, 2025, the business can claim a 100 per cent first year capital allowance against the business’ profits;
If the vehicle is leased, the full leasing costs of the electric vehicle can be deducted from the business’ profits. The usual 15 per cent restriction for car leasing only applies if emissions exceed 50g/km.
Also, the lower BIK charge for an employee choosing an electric company car will result in a significantly reduced Class 1A NICs charge for the employer, although the saving may potentially be outweighed by the additional cost to the employer of providing an electric car.
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