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L91 - Tightening of legislation on taxation of company cars

6 min to readInformation
Last week, the government agreed on changes to tax legislation that will affect drivers for whom an employer has made a company car available. These changes will come into effect on 1st February 2020. At the same time, the government is taking steps to support more environmentally friendly cars by guaranteeing savings in taxation in 2020 on EVs and plug-in hybrids.
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Despite many relevant and critical questions with regards to the practicality of the changes in legislation, the proposal was agreed as intended. This means that both leasing companies and companies which offers company cars to employees need to be aware of these changes.

At LeasePlan, we are aware that the changes have the potential to cause uncertainty for drivers with a company car, as in the future the exact final taxation will not be known until four months into the lease contract. Despite a concerted attempt from the industry to convince the government about this challenge, unfortunately it fell on deaf ears.

As always at LeasePlan, we will strive to create as smooth a process as possible, so that both our drivers as well as our clients will continue to have the best possible experience. Obviously we understand any frustrations that the changes in legislation might cause for both drivers and clients, and in an attempt to try and simplify the impact of the changes, we have created a short overview which can be referred to for initial guidance.

Short overview

  1. Køretøj indregistreret efter 1. feb. 2020Vehicles made available to drivers after 1st February 2020

    Taxation will change after four months from the first day of registration. The final taxation is not known until four months after this when it is recalculated based on market values. The taxation could remain unchanged, but will most likely increase. The taxation cannot decrease after recalculation.

  2. Køretøj indregistreret før 1. feb. 2020Vehicles made available to drivers before 1st February 2020

    Taxation will remain unchanged.

  3. Køretøj indregistreret efter 4. okt. 2017 med ny bruger efter 1 feb. 2020Vehicles made available after 4th October 2017, with a new user after 1st February 2020

    When a vehicle that was registered for the very first time after 4th October 2017 gets a new driver, the taxation will be changed for the new driver unless the taxation has already been calculated based on market values. If the current taxation is not based on market values, this will then be the case from the time that the new user takes over the vehicle.

Below we will provide a more detailed review on the legislation.

Impact on company cars made available before 1st February 2020

The changes in legislation will not have an impact on company cars that have already been made available to an employee before 1st February 2020. The taxation on these vehicles will not change and will be based on the price of the car when first registered, as was the case before the change in legislation.

Impact on company cars where a lease contract was signed before 1st February 2020 with agreed delivery after the 1st of February 2020

The change in legislation does not take any accommodative measures towards agreements made before 1st February 2020. If such an agreement has been made, the taxation will be recalculated based on the changed legislation.

Impact on company cars made available after 1st February 2020

**If the car is new at the time it is made available to the employee: ** At first registration the taxation will be calculated as done previously. This is the level of taxation that was previously informed in calculations and leasing contracts. This will also form the base of taxation in the future when calculations are made for new vehicles.

It will not be possible to inform on the future level of taxation after recalculation, as this will not be known until the time of recalculation after 4 months. After recalculation the taxation will be based on market values.

The changed level of taxation will not affect the employee retrospectively in terms of the months when the employee had the original taxation. It will only have impact going forward from the time of recalculation. An employee with a company car will see an applied taxation for the full month (in the month where the car was made available). This applies regardless of whether the car was made available on the first day of the month or the last.

If an employee changes their car during a given month, the current legislation states that the highest taxation applies. This is also applicable if the taxation changes during a month, for any reason. This will also apply in the future. The result of this is that the changed taxation will apply from the moment of recalculation, no matter when during the month this is completed.

The changed taxation will be sent to the fleet managers who will then be responsible for informing affected employees and salary accounting of the changes.

When the vehicle is used at the time it is made available to the employee – including scenarios where the car user changes internally within a company, with taxation also changing to a different driver.

When the vehicle has previously been recalculated, the taxation will be based on market values. This applies for all vehicles registered after October 2017.

If a vehicle has to be recalculated but this hasn’t been performed, the initial taxation will apply up until the moment of recalculation. From the moment of recalculation, the taxation will change and will be based on market values.

For vehicles which are not being recalculated, the taxation will be based on the initial tax assessment from the first registration. Just as it applies for new vehicles, the changed taxation will not affect the employee retrospectively.

Impact on companies

With the changes in legislation, the government’s primary focus is to tighten the rules surrounding taxation on company cars. As the current legislation already ensures recalculation for registration tax purposes after four months, companies will not experience an increase in the lease instalment as a result of this change. The only factor affected is the taxation on drivers.

It is mandatory by law for companies to deduct the correct taxes from employees, including any taxation retained as a result of a company car. Due to the changes in legislation, companies will be responsible for correcting taxation after recalculation.

At LeasePlan we are currently working on a solution to automatically send changed taxations to fleet managers or points of contact, as soon as recalculations has been performed.

Impact on drivers in a company car

As the changes in legislation seek to tighten the rules around taxation on company cars, drivers may experience some uncertainty around future taxation.

In the future, when an employee orders a company car they will be informed about the initial level of taxation. As the changes in legislation require a recalculation to be performed within four months, the driver can see the level of taxation change.

Unfortunately, there is no alternative to the recalculation of taxation within the new rules, and it is not possible to estimate the future taxation. This is because the calculation is based on a level of insecurities, making it irresponsible to do so as the future taxation will be affected by variable factors such as market values, mileage, etc.

Multiple parties within the industry have been assessing the expected level of change in taxation when recalculating vehicles in future. Please note that such assessments can be prone to error, but depending on make, model, market values and several other elements, it is not unlikely to see a change in the level of taxation between 0-15%. It is however still too early to make such assessments on specific models as the changes in legislation could potentially effect a change in the average choice of company car, which could also indirectly cause changes in market values and therefore taxation.

Published at January 31, 2020
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January 31, 2020
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