The end of June may have seen many of us grappling with the benefit-in-kind reporting requirement of form P11D. During this period, HMRC published its annual benefit-in-kind statistics for company cars and fuel which provides an overview of the company car fleet landscape for the 2021/22 tax year.
Headline statistics – 2021/22 tax year
- 720,000 – The number of people in receipt of a company car benefit (down by 25% from 960,000 in the 2015/16 tax year).
- 50,000 – The number of people in receipt of a corresponding company fuel benefit.
- 86g/km – The average CO2 emission figure for company cars (down by 13g/km from the prior tax year).
- £3.95 billion – The total taxable value of company car benefits, representing nearly half of the £8.6 billion of benefits subject to Class 1A NIC.
- 17% – The percentage of zero-emissions vehicles during the 2021/22 tax year.
Company car (and fuel) trends
With an eye on the tax implications, the key points to draw-out from HMRC’s statistical report are:
- The company car, once seen as a key benefit to employees, has been on the decline for several years as the nature of UK industry and the UK workforce has changed. Despite the decline, 2021/22 was the first year in a while without a decline in the number of company cars on the road compared to the prior tax year. This suggests that the decline may have levelled off, particularly as business travel resumed following the Covid pandemic.
- The UK government has tough targets to push towards net-zero. Consequently, a ban on new petrol and diesel cars is expected to take effect from 2030. A key aim of this is to accelerate the switch to electric vehicles (EVs). The noticeable increase in EVs over the last few tax years is an encouraging sign that employers and employees are actively making the switch. In many cases, employers are offering EV-only company car salary sacrifice schemes as part of their ESG agenda.
- The reduction in CO2 emission figures/percentages will result in a direct reduction in the income tax and Class 1A NIC received by the Treasury. In the lead-up to 2030, when sales of new petrol/diesel cars are to be banned, it is likely the Treasury will seek to reduce the reliefs available for EVs to avoid a deficit to the public purse.
With employers increasingly offering EV-only company car schemes to employees, there are several things to consider before setting up a scheme.
Effective salary sacrifice: Car schemes are mostly operated via a salary sacrifice scheme. The core component of the scheme relies on the employee effectively giving up the right to receive cash remuneration in exchange for an employer provided car.
With HMRC no longer providing clearance on salary sacrifice arrangements, businesses must ensure any scheme implemented is effective from a PAYE and NIC perspective. Failure to do so can result in significant income tax and NIC liabilities which HMRC will collect from the employer.
Understanding the financials: There are many car fleet management companies in the market. Increasingly, they will look to emphasise the NIC savings for the employer, yet they commonly neglect the employee and their potential income tax and NIC savings.
While the employer can make savings, it often requires strong employee uptake to reach a threshold at which the employer can recover the costs of implementing the scheme. Failure to properly emphasise the benefits to employees can commonly lead to a low scheme uptake, meaning the time/cost spent in implementing the scheme is wasted.
EV charging: The ability to charge an EV is a common barrier to employee uptake. Some businesses have avoided introducing EV-only schemes on the basis that their employees don’t have their own driveways or parking spaces where a charger can be installed. In addition, some employers aren’t prepared for the costs of installing charging points at work or paying for the electricity used.
For employees, installing a charger can be expensive. Consideration needs to be given as to whether such costs can also benefit from the income tax and NIC savings available under salary sacrifice. For employers, many are uncertain on the tax and administrative burden of providing free or discounted access for employee to charging points on their business premises.
Reporting: Despite the income tax and NIC savings available, employers must still consider the reporting obligations relating to company cars. i.e. forms P46(Car), P11D and P11D(b). For employers that payroll benefits, information must still be shared with employees at the tax year end and values reconciled for form P11D(b) purposes.
What is clear is that cars are still an attractive benefit to many employees and the current tax breaks on EVs make this more so if the figures are properly understood by all and the practicalities of charging arrangements are sorted as part of the roll out of any scheme.
Lewis Howarth is a senior manager in BDO’s global employer services team