Vehicle Benefit Charges from April 2023

Employers providing company cars to employees, company directors offering vehicles as benefits, and HR professionals and payroll teams managing vehicle benefits.

Clarifying how company car benefits are taxed from April 2023, the impact of emissions on vehicle benefit charges, and how to calculate taxable benefits for electric vehicles.

With the introduction of new vehicle benefit charges in April 2023, understanding how to manage taxable benefits, especially for electric vehicles, is essential for compliance. Employers who fail to comply may face P11D reporting requirements and Class 1A National Insurance liabilities.

How Company Car Benefits Are Taxed from April 2023

From April 2023, company car benefits are taxed based on the car’s emission levels, with different rates for petrol, diesel, and electric vehicles (EVs). The key factors affecting the vehicle benefit charges include:

• Emission levels (CO2 emissions) and how they affect the taxable benefit amount
• The vehicle’s fuel type (EVs attract lower tax rates than petrol and diesel vehicles)
• The WLTP (Worldwide Harmonized Light Vehicle Test Procedure) emissions test, which is now used to calculate emissions

Employers need to ensure they factor in these variables to determine the correct benefit charge for each company car.

The Impact of Emissions on Vehicle Benefit Charges

The vehicle’s emissions will significantly impact the benefit charge. As emissions levels rise, so does the benefit charge, meaning employees driving higher-emission cars will face higher taxable benefits.

For electric vehicles (EVs), the benefit charge will be lower, making them a more tax-efficient option. This makes it crucial for employers to assess the emissions levels of their fleet and adjust their policies accordingly.

How to Calculate Taxable Benefits for Electric Vehicles

Electric vehicles benefit from lower vehicle benefit charges. The following factors are used to calculate the benefit charge for EVs:

• The car’s CO2 emissions (for hybrid and petrol/diesel vehicles) and electric range (for hybrids)
• The list price of the vehicle, adjusted for any discount or employer contribution
• Whether the vehicle is used for business purposes (e.g., work-related travel), as business use can reduce the taxable benefit

Employers should work with their fleet managers to track these details for compliance and ensure the most tax-efficient choices for employees.

Real-World Application

Common situations where these rules apply include:

• Company car fleets, where employers need to manage the tax treatment of a large number of vehicles
• Employees using company cars for both business and personal purposes
• Choosing between electric vehicles (EVs) and traditional petrol/diesel cars for the company fleet, and understanding the tax implications for each option

Employers should regularly review the emissions of their fleet and make adjustments where necessary to stay compliant and take advantage of any available exemptions or reduced charges for EVs.

Risks and Compliance Considerations

Failure to comply with the updated rules for vehicle benefit charges can result in:

• P11D reporting obligations
• Class 1A National Insurance liabilities for the employer
• Penalties for incorrect or late reporting of vehicle benefits

Employers should ensure that they correctly calculate the taxable benefit for each company car and ensure timely reporting to avoid these risks.