CHANGES TO BENEFIT IN KIND CALCULATIONS FOR …

CHANGES TO BENEFIT IN KIND CALCULATIONS FOR COMPANY CARS

Information for company car drivers

Q Am I affected by this new legislation?

You may be if you are entitled to a company car or a cash allowance. After 6th April 2017, if you choose to take the company car, your Benefit in Kind (BIK) will be calculated on the higher of:

The CO2-based Benefit in Kind Cash allowance foregone

You will continue to pay income tax on the CO2-based Benefit in Kind if:

You order your vehicle on or before 5th

April 2017, do not change the order once placed and return the vehicle prior to the 6th April 2021

You choose an Ultra-Low Emission Vehicle

(75g/km CO2 or below)

The cash allowance offered is lower,

throughout the term of the lease, than the CO2-based Benefit in Kind of the vehicle.

We've created the flow chart opposite to provide further clarity.

5

On or before 5th April 2017?

You will not be affected until you change your vehicle or contract or 6th April 2021 if you still have your vehicle.

When will you order your company vehicle?

6 On or after 6th April 2017?

NO.

You will not be affected by these

changes.

Do you have an entitlement to a cash option that you can forgo to order a car?

75g/km CO2 or less

You will not be affected until you change your vehicle.

YES.

What is the CO2 emission of the vehicle

you are ordering?

YES.

Then you will continue to pay income tax on the

CO2 based BIK value.

76g/km CO2 or more

Is the CO2 based BIK value higher than the

cash allowance?

NO.

You will pay income tax on the cash allowance

you have not taken.

Q If I have been invited to order my vehicle what do I need to do to ensure I am covered by the existing rules?

A You need to have ordered the vehicle, with a

signed paper or electronic order form, prior to 6th April 2017. If the order is on paper we would expect it to reach us in a timely manner. The earlier you can order the vehicle the better as this will minimise the chance of any changes after 6th April 2017 which could affect you.

Q What happens if my order changes after 6th April but I placed it on or before 5th April 2017?

A If there is a change to the model (by you or

the manufacturer) after 5th April 2017, the car will be subject to this new legislation.

Q Can I order my car 6 months in advance if I am not due to renew until the end of the year?

A No. HMRC has stated that they will be looking

out for abuse and they expect any orders to be delivered in a normal timeframe for that make and model. They would expect all vehicles ordered before April to be delivered within 8-16 weeks to avoid being impacted by the new legislation. Trying to take delivery of a car early could lead to early termination charges on your current vehicle which your employer will not allow.

2 Changes to Benefit In Kind calculations for company cars

Q What will the change mean to me? A It impacts individuals in different ways, depending on the car you choose, the cash allowance option available and your personal

income tax bracket.

Below is an example where a driver has the option of a ?700 cash allowance.

MAKE MODEL DERIVATIVE LIST PRICE CO2 EMISSIONS

BMW 3 Series Diesel Saloon (2015) 320d SE 4dr ?30,980.00 111g/km

Existing rules BIK assessment

BIK Rating Annual CO2 based BIK Monthly CO2 based BIK

2017/18 24%

?7,435.20 ?619.60

2018/19 26%

?8,054.80 ?671.23

2019/20 29%

?8,984.20 ?748.68

2020/21 30%

?9,294.00 ?774.50

Tax cost for a vehicle ordered before 6th April 2017

Monthly Tax Cost 20% Monthly Tax Cost 40% Monthly Tax Cost 45%

2017/18 ?123.92 ?247.84 ?278.82

2018/19 ?134.25 ?268.50 ?302.06

2019/20 ?149.74 ?299.48 ?336.91

2020/21 ?154.90 ?309.80 ?348.53

Average ?140.70 ?281.41 ?316.58

The new tax rules do not apply where a cash alternative is not available to an employee, in this case the existing rules continue to apply.

Tax cost for a car ordered after 6th April, where the employee has a cash allowance option of ?700 per month

Monthly CO2 based BIK (top table)

Monthly Cash allowance foregone

New BIK Assessment (Higher of the above)

2017/18 ?619.60 ?700.00 ?700.00

2018/19 ?671.23 ?700.00 ?700.00

2019/20 ?748.68 ?700.00 ?748.68

2020/21 ?774.50 ?700.00 ?774.50

Average N/A N/A N/A

Monthly Tax Cost 20% Monthly Tax Cost 40% Monthly Tax Cost 45%

?140.00 ?280.00 ?315.00

?140.00 ?280.00 ?315.00

?149.74 ?299.47 ?336.91

?154.90 ?309.80 ?348.53

?146.16 ?292.32 ?328.86

The cash allowance is greater than the CO2 based BIK for the first 2 years. Therefore in this scenario the driver will be taxed on the value of the cash they have foregone in these years.

The cash allowance is less than the CO2 based BIK for the final 2 years. The employee will be taxed on the CO2 based BIK in these years.

The CO2 based BIK and the cash allowance are quite similar in this example to demonstrate how your personal taxation can switch

between them over the length of the car lease.

20% Tax 40% Tax 45% Tax

Existing Rules / No Cash Allowance

Average tax cost

?140.70 ?281.41 ?316.58

New rules ?700 cash allowance

Average tax cost

?146.16 ?292.32 ?328.86

Increase vs old rules

?5.46 ?10.91 ?12.28

3 Changes to Benefit In Kind calculations for company cars

Q What happens if I make a trade-up payment?

A HMRC has confirmed that the CO2-based Benefit in Kind value,

ignoring any personal use contributions or capital payments you may make, is compared to the cash allowance foregone. The higher value is selected as the relevant taxable value. Once this comparison has been completed, any capital contributions and personal use contributions are then applied to give the final value you will pay income tax on. Each case will need to be calculated individually.

Q What happens if I receive a trade-down payment?

A HMRC has confirmed that any trade-down payment is used to

reduce the cash that you would have been paid. For example, if you had an entitlement to a ?5,000 allowance and receive ?1,000 trade down, then the cash allowance is adjusted to ?4,000. This means that you are more likely to be taxed on the CO2-based Benefit in Kind for the vehicle. However it depends on individual vehicle choice, trade-down payments and cash allowance. Each case will need to be calculated individually.

Q What do I need to tell HMRC?

A Like today, you should call HMRC to advise them that you

have taken a company car and to provide the vehicle CO2, fuel type, list price and any capital or monthly payments made. In addition, for any vehicle ordered on or after 6th April, you should also advise HMRC if you had an entitlement to a cash option and what that value would be. HMRC will calculate the higher value and tax you based on this value.

If your employer taxes you via your payslip rather than via PAYE, they will need to perform this calculation to identify the higher value for you to pay income tax on.

4 Frequently asked questions

Whilst every care has been taken to ensure the accuracy of this document, Arval UK Limited and any of its group companies (together "Arval), do not give any representation or warranty as to the legal, regulatory, tax or accounting implications of the matters referred to in this document, nor for the accuracy of the information provided herein. Arval is not providing you with tax or other professional advice in this document. You and your employees (as applicable) should take independent advice where necessary. Arval is not responsible or liable to you, your employees or any third party for any liability, loss, claim, cost or expense incurred by you, your employees or any third party as a result of relying on any information contained in this document.

Arval UK Limited (Whitehill House, Windmill Hill, Swindon, SN5 6PE. Registration number 1073098. VAT Registration GB 202 1441 76) is authorised and regulated by the Financial Conduct Authority | Email: info@arval.co.uk | Telephone: 01793 887000

TC.1546.03/17-Driver

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