Company car tax bands

Running a low or zero-emissions car was made significantly more desirable for company car drivers last year, with the introduction of zero or very low company car tax rates for the greenest models. The car tax rates applicable under the benefit-in-kind (BIK) tax system were lowered for three years, while those for higher-emissions cars were raised. 

The BIK rate for new cars that don’t produce any CO2 – in other words, all fully electric cars – dropped from 16% to zero. On an electric Renault Zoe small hatchback, that equates to a £1023 saving in BIK tax for someone in the 20% tax bracket and £2046 for a 40% taxpayer.

The 2020-2021 rates for new plug-in hybrids with emissions ranging from 1-50g/km came down to between three and 13%, depending on their CO2 output and electric-only driving range. So, a BMW 330e with a CO2 output of 32g/km (WLTP) and a 35-mile electric range now qualifies for a rate of 10%, equating to a saving of £479 if you’re in the 20% tax bracket, or £958 for a 40% taxpayer. 

In theory, plug-in hybrids can qualify for the 0% rate too, if they have an electric-only range of more than 130 miles. However, none is close to achieving that yet.

The 0% rate for 2020-2021 also applies to zero-emissions cars registered before 6 April. And cars in the 1-50g/km emissions bracket registered before 6 April also qualify for a reduced rate of between two and 14%, again depending on pure electric driving range. 

For the upcoming 2021-2022 financial year, the rate for zero-emissions cars will rise to 1%, then to 2% the following year. The rates for cars with emissions of 1-50g/km will remain the same for the next three years. 

The 4% surcharge on diesels – introduced in 2018 amid growing concern over the particulates and NOx that they emit – still applies for the 2020-2021 financial year. The supplement is for diesels that don’t meet the latest Real Driving Emissions (RDE2) standards, although diesel plug-in hybrids are exempt because they’re classed as alternative-fuel vehicles.

• Quickly calculate your BIK bill with our company car tax calculator

Although the BIK tax bands for higher-emissions cars are between 1% and 6% lower than before, any reductions are offset by the fact that the rates applicable from 6 April 2020 are based on the higher CO2 figures produced in the latest WLTP test procedure, rather than the less realistic NEDC figures that were previously used. 

As a result, the official CO2 figures for more than half of all new cars are expected to rise by 10% to 20%, even though the cars’ emissions won’t actually be any different from their current levels. The knock-on effect of this is that they have moved up a number of tax bands – one or two in the case of some hybrids but several in many other cases, so the rates have gone up.

For example, the Skoda Superb 2.0 TDI, which emitted 103g/km under the old test procedure, now has a CO2 figure of 135g/km. This means its BIK rate rose from 28% to 34% (including the four percent diesel surcharge), so it will cost a lower-rate taxpayer £345 per year more. 

Company car tax bands from 6 April 2020 

Cars registered after 6 April 2020

Cars registered before 6 April 2020

The big winners 

We’ve looked at how much company car drivers can save on two award-winning zero or low-emissions cars, the BMW 330e plug-in hybrid and Tesla Model 3, assuming they were first registered after 6 April 2020.

We've also looked at the cost of two new low-emission models that took gongs in our 2021 Car of the Year Awards: the BMW iX3 electric SUV and the Volkswagen ID.3 electric hatchback. Prices are for a 20% taxpayer.

BMW 330e M Sport (M Sport Pro Pack)

CO2 32g/km (WLTP) Electric driving range 35 miles 

P11D price £45,895

BIK tax 2019-2020 

Rate 16% Cost £1469

BIK tax 2020-2021 

Rate 10% Cost £918

Saving £551

Find BMW 330e deals >>

Tesla Model 3 Standard Range Plus

CO2 0g/km Electric driving range 267 miles 

P11D price £43,435

BIK tax 2019-2020 

Rate 16% Cost £1390

BIK tax 2020-2021 

Rate 0% Cost £0

Saving £1390

Find Tesla Model 3 deals >>

BMW iX3 Premier Edition

CO2 0g/km (WLTP) Electric driving range 279 miles 

P11D price £61,845

BIK tax 2020-2021 

Rate 0% Cost £0

Find BMW iX3 deals >>

Volkswagen ID.3 Pro Performance Life

CO2 0g/km Electric driving range 263 miles 

P11D price £32,935

BIK tax 2020-2021 

Rate 0% Cost £0

Find Volkswagen ID.3 deals >>

Next: should you have a company car or take a cash allowance? >

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