In this blog I give a snapshot overview of the key areas in the Finance Act 2020 for consideration by employers, including potential purchase of company cars and employees working from home. 

Potential purchase of company cars

If you are considering purchasing a company car there are various changes to be aware of which may influence your decision. 

Effect of WTLP changes on rate of benefit

Cars registered on or after 6 April 2020 have a new emissions figure for determining the company car benefit. The new emissions figure accords with the worldwide harmonised light vehicle test procedures (WLTP). To compensate for the likely increase in car benefit due to the adoption of WTLP, there is a modification to the car benefit percentages for cars registered on or after 6 April 2020.

When submitting the Form P11D over the next few years, we would recommend that particular attention is given to the date the car was registered to ensure the correct percentage is applied to the list price. Please contact your usual Johnston Carmichael adviser if you require assistance with this.

Purchase of electric cars

Electric company cars can be very tax efficient. Two examples are listed below. From 6 April 2020 the rules which apply to the relevant percentage for hybrid vehicles changed, where the electric mileage will impact on what the relevant benefit in kind percentage will be. Depending on the electric range of the vehicle the 2020/21 benefit rates would be as follows:

The benefit in kind percentages for 2021/22 and 2022/23 are 1% and 2% respectively.  Therefore, an electric company car, or a very efficient hybrid car, can once again prove to be a genuine benefit to the employee.

The company will have a Class 1A national insurance liability in respect of the benefit in kind.

Fuel benefit in kind

Tax law does not treat electricity as a fuel, and therefore electricity supplied by an employer attracts no benefit in kind.

An employer may also pay for the following without a taxable benefit arising:

• A vehicle charging point to be installed at the employee’s home.
• A charge card to allow individuals with access to commercial or local authority charging points.

It should be noted that the above points only apply to pure-electric cars, such as the Tesla in the example above.

Capital allowances

A 100% first year allowance will apply to the purchase of a new zero-emission car from April 2021, which allows a full deduction for the cost of the car in the accounting period.  

Cars with emissions of 1-50 g/km will qualify for 18% general pool writing down allowances (writing down allowances allow you to deduct a percentage of the expenditure from your profits each year). 

All cars with CO2 emissions in excess of 50g/km will receive relief at the rate of 6% special rate pool writing down allowances.

Car leases

Currently there is a 15% disallowance of car lease expenses incurred in the period where the CO2 emissions of the car are in excess of 110g/km. Following 1 April 2021 this will apply to cars with CO2 emissions of more than 50g/km. As such, further tax relief will be restricted for cars with CO2 emissions of more than 50g/km.

Cars unavailable for private use

Whilst employees are working from home or on furlough, and company cars are therefore not in use, the car benefit continues to apply nonetheless. Car benefits arise where a company car is made available for private use, irrespective of whether it is used. The benefit can be reduced for non-availability for a continuous period of at least 30 days. It has been confirmed that HMRC is of the view that a car kept on an employee’s drive is still available for private use. A SORN declaration (a "Statutory Off Road Notification", which advises the DVLA that you are taking your car off the road) would not be accepted and the benefit would still apply. In order to apply for cars unavailable for private use, it is unclear (and therefore doubtful), if HMRC would accept evidence that the car had not been privately used during the COVID-19 period, if for example this could be shown through a tracker of before and after photos of the car mileage. HMRC accepts that the car is unavailable if it is physically incapable of being used, or where the employee is unable to access the car (e.g. they have no ability to access the keys). As always, if a claim is made, this should be documented in case HMRC makes enquiries at a later date.

Employees working from home

From April 2020 the maximum flat rate income tax deduction to cover additional household expenses increased from £4 per week to £6 per week tax-free, where working at home under agreed working arrangements; i.e. where the employee is required to work at home by the employer. Larger amounts can be claimed but only if evidenced by invoices or proof of extra costs incurred, or where a separate arrangement has been agreed with HMRC.

Following COVID-19 and the requirement to work from home where possible, employers and employees are considering whether there are any tax breaks available for the increased household expenses now being incurred. Provided that the employee can demonstrate that their home is truly a place of work, some relief for expenses should be available. There are two ways that home-working employees may be able to claim relief:

1. The employer could make tax free payments to cover employment related costs (in effect, a reimbursement of expenses for the employee);
2. The employee could claim a deduction against income for qualifying expenses that they incur.

If you are considering making such payments please consult with your usual Johnston Carmichael adviser and we will be able to assist with the options available.

Some costs will not qualify for tax-free reimbursement or employee tax deduction. For example, if an employee already has broadband installed, then it is likely that in most circumstances no further claim or deduction can be made. 

Get in touch

For more information get in touch with me at Brian.Rudkin@jcca.co.uk, or your usual Johnston Carmichael adviser.