As the tax rules have evolved the industry has kept pace in providing a more extensive range of vehicles which qualify for enhanced tax reliefs.
Currently the rules provide that until 31 March 2021 the purchase of a new and unused car with registered CO2 emissions not exceeding 50g/km will qualify as low emission cars for the purposes of First Year Allowances (FYA).
This could mean that your dream car could attract 100% tax relief in the year of acquisition.
However, the clock is ticking on these rules which allow some hybrid vehicles to qualify. From 1 April 2021, the CO2 emissions limit is reducing to 0g/km meaning that only purely electric cars will qualify for FYA. The purchase of all other cars will fall within the normal capital allowances provisions, which may see the cost being written off for tax purposes, over several years.
This potential upside to the extension of the FYA rules, albeit at a reduced CO2 rate, is mirrored by the Benefit in Kind (BIK) legislation with the introduction of a zero per cent rate for electric vehicles registered from 6 April 2020. This will rise to one per cent in 2021/22 and two per cent in 2022/23, based on current legislation. The BIK legislation also dovetails nicely with the rules on salary sacrifice for ultra-low emission vehicles, so it is still possible to forgo salary in order to take a company car without triggering the Optional Remuneration Arrangement rules.
There is still a
window to lock into the FYA for hybrid vehicles for business owners before HM
Revenue & Customs apply the brakes.