What are the best ways to save on company car tax? We take a closer look.
It pays to plug in
Tax incentives for company cars emitting less than 50g/km CO2 (which includes all electric and most plug-in hybrid models) were renewed last year. It’s made going electric the most effective way to reduce your tax bills.
Until April 2022, drivers who choose an electric car (rated at 0g/km CO2) will be taxed based on 1% of the list price, compared to 28% or more for an equivalent petrol, diesel or hybrid car. That usually equates to at least a 90% reduction in Benefit-in-Kind payments.
The restructure also differentiates between sub-50g/km plug-in hybrids, which have a spread of bands based on their electric range. For example, in Dynamic spec, a Toyota RAV4 Plug-in offers a 46-mile electric range and falls into the 7% Benefit-in-Kind band, compared to 39 miles and 11% for the Ford Kuga ST-Line Edition. Despite the Toyota’s £9,000 list price disadvantage, company car tax is actually lower than it would be for the Ford.
Choose Options Carefully
Besides the tougher test cycle, one of the biggest changes under WLTP is more granular efficiency data which recognises the effects of individual optional extras. The downside for company car drivers is that desirable options such as larger wheels tend to increase CO2 emissions (and reduce a plug-in hybrid’s electric range), which can nudge the car up a tax band or two. That’s a big price to pay over a three-year lifespan.
Keep an eye out for Business Editions
Fleets have massive buying power and can negotiate vehicle discounts that aren’t available to private buyers. However, company car tax is based on the published list price, so those savings aren’t passed down to drivers.
In response, some manufacturers offer specific trim levels, with a low list price, limited or no discounts and equipment tailored towards company car drivers. These offer reduced Benefit-in-Kind payments compared to an equivalent retail-focused version.
Vans and pickup trucks are a bit of a Benefit-in-Kind loophole. Instead of a sliding scale based on a CO2-weighted percentage of their list price, the taxable value is fixed at £3,500 (£0 if they’re electric) which can make them a tax-efficient alternative to a large car.